Microsoft’s Office 365 growth story
Azure, Office 365, and Dynamics 365 are key offerings that help Microsoft (MSFT) in generating its overall cloud revenue. In fiscal 4Q17, Office 365 continued to be a key growth driver for the company’s Productivity and Business Processes segment, which includes Office 365, the cloud version of Office, and the traditional version of Office.
Office 365’s commercial revenues rose 44%, in constant currency terms in fiscal 4Q17. Office 365’s revenue growth was collectively driven by the ARPU (average revenue per user) expansion of “emerging E5 momentum” and installed base growth across entire workloads.
E5 refers to Microsoft 365, which is a subscription offering. Office 365, Windows 10, Enterprise Mobility, and Security for Businesses are bundled together to form Microsoft 365.
There are two versions of Microsoft 365—Microsoft 365 Enterprise and Microsoft 365 Business for SMB (small- and medium-sized businesses). Microsoft 365 Enterprise, has two plans—Microsoft 365 E3 and Microsoft 365 E5. Both these versions can be bought on August 1, 2017, and they will replace Microsoft’s Secure Productive Enterprise.
Office 365’s subscriber base grew ~17% YoY (year-over-year) to 27 million in fiscal 4Q17.
Office software licensing revenues
The above presentation lists the different features of MSFT’s E3 and E5. Fiscal 4Q17 marked the first quarter when Microsoft’s Office 365 generated more revenue than on-premises and conventional Office software licensing revenues. Notably, Office 365 garners monthly payments, while its traditional Office has multi-year licenses.
Continue reading this series (below) for a look at how Microsoft’s Office 365 is poised to play a major role in the company’s vision of becoming the top player in the cloud (VOO).