Microsoft (NASDAQ:MSFT) Establishing Dominance in the Cloud

NEW YORK – While Microsoft (NASDAQ:MSFT) [stockdata ticker=”MSFT”] has lost, at least for now, the device war, there is one sector where the company is flexing its muscles – the cloud.

According to a recent report in Wired, Microsoft’s cloud revenue was up more than 100 percent in the quarter that ended in September.  The company’s commercial cloud segment consists of Windows Azure and Office 365, has displayed surprising growth.  In a call with analysts, the company said that both cloud service lines posted triple-digit growth in revenue while gross margins continued to expand.

Based on the most recent results, the company is in the process of pulling off the delicate task of converting their strong share in the business software market from desktop licenses to the cloud.  According to Microsoft CFO Amy Hood, ‘as CIOs increasingly look to capitalize on the opportunities of cloud computing, we’re confident they will continue to look to Microsoft for their IT solutions.’

Whilst Amazon (NASDAQ:AMZN) [stockdata ticker=”AMZN”] remains the dominant player in cloud hosting, with offerings like its Elastic Compute Cloud (EC2), and Simple Storage Service (S3) Microsoft is gaining.  Earlier this year, Forrester estimated that Amazon’s share of the market at 71 percent, versus 20 percent for Microsoft’s Azure.

Startups such as Box and Dropbox, as well as internet giants such as Amazon and Google (NASDAQ:GOOG) [stockdata ticker=”GOOG”], have been garnering most of the attention.  However, that is starting to change and as risk-averse non-tech businesses chose Microsoft.  For example, the San Francisco-based talent marketplace Kaggle, switched from Amazon to Windows Azure as Microsoft’s system better supported their needs.

According to Hood, ‘our ability to power the cloud whether you want to run it, you want a service provider to run it, or you want to use ours is really an incredibly powerful story.’  While this sounds like cheerleading, this appears to be what decision makers want to hear.  While it is still early, the bright spot in Microsoft’s transition is the company’s cloud services and investors should pay increasing attention to how this segment is driving revenue growth and profits.

Shares of Microsoft opened down 1 percent on Monday.