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Protocol | Enterprise
Your guide to the future of enterprise computing, every Monday and Thursday.
Photo: Eduardo MunozAlvarez/Getty Images

The late-pandemic enterprise boom

A Microsoft Store in New York City in April 2020.

Welcome to Protocol | Enterprise, your comprehensive roundup of everything you need to know about the week in cloud and enterprise software. This Thursday: Microsoft and Google lead a parade of strong enterprise tech results, decentralized computing struggles to find a fit, and the Pentagon's IP surprise.

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The Big Story

Spring forward

It's well understood that the worst pandemic in a century sparked one of the best years for enterprise tech during 2020, as companies were forced almost overnight to update their supply chains and sales channels for a socially distant world. Judging by the first quarter of 2021, a lot of that work is still in progress.

Strong growth for both Microsoft and Google's commercial tech businesses were just two pieces of evidence this week that demand for modern enterprise tech is still very strong. This shouldn't come as a shock: Enterprise tech migrations can take years of work, especially if the businesses involved haven't updated their core architecture in more than a decade.

Still, results from other companies would indicate that just about all the enterprise boats are rising in sync with vaccination efforts. Even IBM swung to a revenue gain last week.

Here are the key numbers to think about, starting with Microsoft.

  • Microsoft's commercial cloud revenue — the most relevant earnings metric to Protocol | Enterprise subscribers — rose 33% year-over-year to $17.7 billion, in line with the growth it posted during the last fiscal quarter of 2020.
  • That figure includes sales of Office 365, Dynamics and Azure. If Azure continues to grow around 50% annually, Microsoft will probably disclose how much revenue it actually contributes to this number, but back of the envelope math suggests it was north of $8 billion last quarter.
  • Bookings are a notoriously imperfect measure of software momentum, but commercial bookings soared by 39% during Microsoft's third quarter, evidence that customers are signing long-term deals with the company.
  • Microsoft invested $6 billion in capital expenditures during the quarter — much of which goes to support its cloud data centers — and plans for a "sequential increase" in the coming quarter.

Google Cloud also provided more evidence that it is gaining traction in the enterprise.

  • Revenue from Google Cloud, which includes revenue from both the Google Cloud Platform service and Google Workspace, was up roughly 46% to $4.1 billion in the first quarter.
  • Perhaps more importantly for Google Cloud, its operating loss fell sharply, from $1.7 billion a year ago to $974 million this quarter.
  • But part of that reduced loss can be chalked up to some accounting changes: Google in January increased the "useful life" of its servers from three years to four, and its networking equipment from three years to five. That led to much lower depreciation expenses in the first quarter.
  • Google's main business generated $19.5 billion in operating income during the quarter, so the company can keep hiring cloud salespeople and building data centers for a long time before its cloud group needs to rein it in. Still, at some point capital-intensive businesses need to make money.

And it's not just the major enterprise platform players that are enjoying the fruits of this accelerated investment in new tech.

  • Data-center revenue doubled at AMD, as cloud providers and data center operators continued to snap up its Epyc server chips. Some of that came at a rival's expense: Last week Intel reported that its data-center revenue fell 20%.
  • Even networking equipment is hot: Juniper beat Wall Street expectations for revenue and earnings, driven by an increase in demand from network operators for new gear.

Amazon's earnings report later today will be the strongest indicator of the week on how evenly distributed this surge in enterprise spending continued to be over the first part of the year. And with the economy starting to perk up, companies that saw the need to modernize their infrastructure last year but couldn't afford it might keep this train rolling well into 2021.

— Tom Krazit

A MESSAGE FROM INTEL AND MICROSOFT AZURE

Financial fraud isn't waning, and as it increases, security tools designed to protect the data in use need to get stronger to combat more complex fraud. Confidential computing is going to play a big role in the future of financial services.

Learn more

This Week On Protocol

Blocking the chain: Enterprise tech companies have been trying to wedge blockchain technology into their products, and they have very little to show for those efforts. I spoke to some enterprise startups who are all-in on an idea of decentralized computing where the blockchain plays only an ancillary part.

In the middle, down under: Atlassian's software development tools are very much established within the enterprise, but it faces big challenges from companies like Microsoft and Salesforce as it scrambles into the cloud era. Protocol's Joe Williams spoke with Atlassian co-CEO Mike Cannon-Brookes about the company's plan to double down on "connection applications."

Peanut gallery view: More than a year into the pandemic, it's safe to say that the world is ready for some outside-the-video-box takes on virtual meeting software. Protocol's David Pierce took a look at some of the newer designs for video chatting software and the motivation to present group communication in a more natural way.

Five Questions For...

Xavier Williams, CEO, American Virtual Cloud Technologies

What's the best piece of advice you could give to someone starting their first tech job?

My advice to someone joining the tech world is based on my personal philosophy: Be accountable, tell the truth and always operate at your highest level. Your career will be a marathon, not a sprint. Be prepared to be a continual learner and to remake yourself to adapt to the new situations you will face and the new technologies you will inevitably need to learn.

What has changed the most at your company in 2020?

Our entire leadership team joined within the past year. We didn't have the benefit of "trust fall" experiences and get-to-know-you lunches. Despite that, I have come to learn a lot about my team — strengths, weaknesses, likes, dislikes. I can't tell you if someone is 5'8" or 6'8" though. We've had to figure out how to deal with the human element differently. Despite not being together physically, we have developed a strong camaraderie. We've taken skills developed working with global teams and applied it to our current situation.

What was the biggest reason for the success of cloud computing over the past decade?

People have become extremely comfortable with the concept of cloud computing over the past decade, in some cases without even realizing it. It has become mainstream through the use of smartphones and connected devices. Think about it — when was the last time you needed a calculator? Did you use an actual calculator or the application on your phone?

What will be the biggest challenge for cloud computing over the coming decade?

The digital divide is quickly becoming a chasm and will continue to grow unless we take real, meaningful steps to try to close that gap. We have seen the gap firsthand during the pandemic. While shifting to remote work and remote school was a minor (or major) inconvenience for some, for others it was an impossibility. The challenge will be to extend access to cloud computing technology to larger and larger portions of the population. While cloud computing has become mainstream, it still hasn't reached critical mass.

What is one book that changed your professional mindset?

"Master of the Senate" by Robert Caro. This book was about Lyndon Johnson's years in public office and the importance of getting alignment from people to move ideas forward, and how to yield power.

Around the Enterprise

A MESSAGE FROM INTEL AND MICROSOFT AZURE

Financial fraud isn't waning, and as it increases, security tools designed to protect the data in use need to get stronger to combat more complex fraud. Confidential computing is going to play a big role in the future of financial services.

Learn more

Thanks for reading — see you Monday.

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