uploads///PRODUCTIVITY AND BUSINESS

Office 365 Drove Growth in MSFT’s Productivity Segment in Fiscal 2Q17

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Apr. 4 2017, Updated 9:07 a.m. ET

Office 365 drove growth in Microsoft’s Productivity and Business Processes segment

Previously in this series, we discussed the consistent growth of Microsoft’s (MSFT) cloud offerings, which points to the possibility of Microsoft achieving $20 billion in cloud revenues by 2018. 

Office 365 was a key growth driver for Microsoft’s Productivity and Business Processes segment, which comprises the cloud version of Office, Office 365, and the traditional version of Office. In fiscal 2Q17,[1. quarter ended December 31, 2016] this segment grew 12% to $7.4 billion in constant currency terms.

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Office 365’s commercial revenues and seats rose 49% and 37%, respectively, in constant currency terms. Office 365’s revenue growth was collectively driven by installed base growth across all workloads and ARPU (average revenue per user) expansion. Office 365’s subscriber base grew 22% year-over-year (or YoY) to 24.9 million in fiscal 2Q17.

Microsoft (MSFT) expects revenues in its Productivity and Business Processes segment to grow in the range of ~$7.7 billion–$7.9 billion in fiscal 3Q17. LinkedIn is expected to contribute ~$950 million to this guidance after the adjustment of the impact of purchase accounting.

Enterprise software space

The increasing adoption of Office 365 can be attributed to Microsoft’s decades-long presence in the enterprise software space. As a result, Microsoft has an enormous installed base that Office 365 is leveraging to increase its adoption. 

Industry experts also took note of Microsoft’s leading position in the enterprise collaboration space. Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, stated, “Office 365 is leading enterprise collaboration and productivity by orders of magnitude. Microsoft has the blessing of a massive installed base and are taking advantage of that. Google started with a consumer base and are adding new customers, but the starting points are quite different.”

Later in this series, we’ll see how Google’s (GOOG) rapid inroads into the collaboration space could stir up the competition and pose a threat to Microsoft.

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