Microsoft To Surpass 100 Million Office 365 Users in 2017

In their FY16 Q4 results, Microsoft revealed that the annualized revenue run rate for commercial cloud products, including Office 365, reached $12.1 billion. A quarter later, Microsoft’s Q1 FY17 results give the annualized run rate as “over $13 billion“.

The billion-dollar increase in the revenue run rate roughly matches the growth needed to achieve CEO Satya Nadella’s $20 billion target for commercial cloud products by the end of June 2018. Microsoft’s cloud revenues have grown by over $5 billion from the $8 billion reported at the end of FY15.

 

 

Although Azure is growing faster than Office 365 (121% versus 54% in constant currency), the relatively higher prices paid for its plans means that it is reasonable to assume that Office 365 is a large part of the commercial cloud products revenue mix. Microsoft’s financial data shows that the growth rate for Office 365 has slowed a tad over the last five reporting periods, but only slightly and the signs still strongly indicate a continuing movement of workload away from on-premises systems to the cloud.

The first wave of Office 365 tenants was concentrated in the small to medium business segments. Evidence now suggests that larger enterprises are comfortable enough with the security, privacy, and operational aspects of cloud services to move an increasing amount of workload to the cloud. Although few large companies like to trumpet such a fundamental change, some stories do emerge. For instance, ABB’s migration of 125,000 Lotus Notes users to Office 365, a project that was apparently completed in just six months. Other Office 365 customers cited by Satya Nadella in his remarks to analysts about the Q1 FY17 figures include Liberty Mutual Insurance, Allergan, and Exelon.

In November 2015, Microsoft reported that 60 million Office 365 accounts are active each month. In other words, these are accounts that log onto Office 365 and perform some action, like creating and sending a message or scheduling a meeting. Microsoft subsequently said that the number was 70 million active users when they reported their FY16 Q3 results in April 2016. This marked an apparent gain of 10 million users in just five months. Oddly, Microsoft said nothing more about Office 365 users at the recent Ignite conference, choosing instead to wait for their Q1 FY17 results.

The new official number is “over 85 million” (a year-over-year growth of 40%), or a gain of another 15 million users in the six months since April. At that rate, the number of active Office 365 users will exceed the 100 million mark in early 2017.

The number of active accounts reported for Office 365 is likely to underestimate the total number of accounts that exist within the service. Microsoft’s number does not include accounts that are provisioned but not used, free accounts (such as Microsoft’s own use of the service), and trial domains. The numbers are even higher for mailboxes. Few tenants do not use Exchange Online and the number of mailboxes is higher than accounts because of shared mailboxes, inactive mailboxes, resource mailboxes, and group mailboxes.

Overall, the numbers for Office 365 look good. It will be interesting to see if Microsoft can maintain this pace and achieve that $20 billion goal in 2018.

Follow Tony on Twitter @12Knocksinna.

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