The Big Story

Rational exuberance?

Tom Krazit writes: Amid the widespread backlash that hit tech companies over the past couple of years, Microsoft skated clear of almost all the damage. It decided to kick off 2021 by putting a big target on its back.

"Businesses need to build their own technology to compete and grow. Microsoft is powering this shift with the world's largest and most comprehensive cloud platform," said CEO Satya Nadella on Tuesday, following the release of Microsoft's second fiscal quarter earnings results. Those earnings revealed a company firing on all cylinders. But there was a subtle flex to Nadella's comment: declaring Microsoft "the world's largest and most comprehensive cloud platform," perhaps unintentionally, makes clear how much power the company has over enterprise tech spending.

Usually it's Microsoft's Seattle-area neighbor, AWS, that draws all the slings and arrows associated with a company at the top of a market's food chain. But if you look across the breadth and depth of Microsoft's cloud software portfolio, you see a company that has a huge presence in nearly every significant enterprise software market of the modern day.

• Microsoft points to its "commercial cloud revenue" stat when making the "world's largest and most comprehensive" claim, and the $16.7 billion in commercial cloud revenue — which includes Azure, Office 365 Commercial, Dynamics 365 and a few other things — was up 34% compared to last year.
• By contrast, AWS recorded $11.6 billion in revenue during its last quarter, and if it maintains the nearly 30% year-over-year growth it had last year, should report around $13 billion in fourth-quarter revenue next week.
• AWS doesn't have a market presence comparable to Office 365 or Dynamics 365 in those respective enterprise software categories, but its cloud infrastructure business is estimated to be just under twice the size of Azure.
• Still, at a $66.8 billion commercial cloud run rate, Microsoft is blowing away other enterprise software companies: for their current fiscal years, analysts expect Oracle to record $40 billion in revenue, SAP to record $33 billion and Salesforce to record $21 billion in revenue. All of those companies are growing slower than Microsoft's commercial cloud business.

Microsoft has an enormous installed base of clients around the world, thanks to its 45-year history. While Windows was once the vehicle for the company's ambitions, it's now been replaced by the cloud.

• Microsoft has done a far more successful job transitioning this older installed base to the cloud than most of its age-group peers, while also positioning itself well as a CIO-friendly alternative to AWS, especially for businesses that compete against Amazon.
• It has also done a very good job leveraging a network of partners and resellers, which have had relationships with Microsoft customers for decades, to push newer software products — think Microsoft Teams — when older mission-critical ones like Office 365 come up for renewal.
• It's not hard to see how Microsoft can use its presence in enterprise software to hawk its newer cloud-era wares in ways that competitors simply can't match. That was just one of many factors behind Slack CEO Stewart Butterfield's decision to join forces with Salesforce.

But at some point, Microsoft's performance may raise eyebrows inside a new presidential administration that has promised to take a closer look at the consolidation of economic power inside a handful of tech companies.

• Business-to-business companies fly a little lower on the competition radar compared to companies that exert power over consumers, but they're not immune to scrutiny.
• So far, much of that scrutiny has been directed at AWS, and deservedly so: With the most widely used infrastructure platform and dozens of products that compete with its customers, AWS has a lot of power to make or break smaller enterprise companies.
• During the early days of the cloud era, there was a lot more mixing and matching of so-called "best of breed" enterprise software products, but as more big-budget buyers start to wade in, there are signs that the power is shifting to the platform companies.

Microsoft is one of tech's greatest turnaround stories; it's amazing how far it has come since Nadella took over in 2014. It's once again at the center of the industry, and with renewed power seems likely to come renewed scrutiny.

• Even so, Microsoft's stock is only up 322% in the last five years. GameStop is up 1,225% over the same period of time, showing that dramatic improvements in business fundamentals are no match for meme stonks.

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This Week On Protocol

"The wolf mentality": This week marked the launch of our latest vertical, Protocol | China, and while you should read all of this week's launch stories (and sign up to receive the newsletter), this story from Protocol's Shen Lu is definitely worth your time. Misogyny is rampant inside Chinese tech companies, especially at Chinese cloud powers Alibaba and Baidu, despite strong representation of women in executive teams.

Bundle up: SAP hopes to engineer a turnaround similar to Microsoft's under new CEO Christian Klein, and it's trying a promotion: bundling several other cloud services alongside the flagship S/4 HANA ERP software. Protocol's Joe Williams took a look at the strategy and how it might revamp SAP's fortunes.

Machine vaccines: California's attempts at rolling out the COVID-19 vaccines to its hard-hit population have been a disaster, a failure of both organization and data. Protocol's Issie Lapowsky talked to Macro-eyes, a healthcare data analysis company that plans to use machine learning to help California health officials figure out how to get their state on track to vaccinate its most vulnerable citizens.

The Week In Enterprise Earnings

• AMD is an even more amazing turnaround story than Microsoft in some ways. The perennial chip just posted record revenue and profit during its fourth quarter, driven by a 176% jump in revenue from sales of server and gaming processors.
• F5 is another company that faced challenges, having had to navigate the perilous journey from hardware data-center company to cloud software company. Fourth-quarter revenue grew by 10% to $624.6 million thanks to 70% growth from its software products and services.
• ServiceNow credited an increase in big contracts with big spenders for its 31% increase in revenue during the fourth quarter, topping Wall Street expectations. Its number of contracts worth more than $1 million rose 23% at the end of 2020 compared to the previous year.
• A shift to subscription revenue paid off for Commvault, which set a new record for revenue for its data protection services. Revenue and earnings both surpassed Wall Street expectations.

Around the Cloud

• The GameStop frenzy hit servers hard: It appeared to have a sizable effect on the tech infrastructure for several financial services companies this week, as Robinhood and Charles Schwab customers, among others, reported difficulty accessing the services on Tuesday and Wednesday.
• Google disclosed that a new group of hackers believed to be working on behalf of North Korea have been targeting security researchers with malware under the guise of reporting new, serious security vulnerabilities.
• Google also released a new version of BeyondCorp, its security service designed to help companies implement a "zero-trust" footing when it comes to verifying access to corporate resources.
• Ever thought about taking a job with AWS and wondered how much you could expect in compensation? The Duckbill Group's Corey Quinn has a post for you.
• As the fallout of the Elastic-AWS dispute continues to ripple through enterprise open-source communities, Logz.io said it would also develop an Elasticsearch and Kibana distribution released under the Apache 2.0 license.
• JFrog announced that it struck a deal with Docker that will free customers of JFrog's software deployment tools from the rate limits Docker recently imposed on free container images.
• Docker also announced a C-suite change: longtime company engineer Justin Cormack has been promoted to CTO.
• Datastax acquired Kesque, a company that provides a messaging service based on Apache Pulsar that allows services within an application to exchange and process data.
• Oh, Elon Musk and Jeff Bezos. You have a combined net worth of around $375 billion. But you're currently squabbling over the altitudes at which your internet satellites should be allowed to fly? The economy is good and normal, thanks for asking.