![]() ![]() AI focus is also behind the acquisition of Nuance Communication for nearly $19bn. Both in the form of specific Azure services used by developers and, more importantly, as an inherent part of all products that Microsoft develops. Large global providers like Microsoft have logical advantages there.Īnother increasingly important part of Microsoft solutions is artificial intelligence (AI). Microsoft will also benefit from other areas like cybersecurity, a sizable market. Satya Nadella, CEO of Microsoft, Earnings Call in January 2021 “What we are witnessing is the dawn of a second wave of digital transformation sweeping every company and every industry. Microsoft is well-positioned to benefit from that. The underlying shift of businesses to the cloud, both in backend infrastructure and productivity tools, is poised to continue. Looking forward, it is hard to see a significant change in those trends. These trends result from successful bets on cloud infrastructure and cloud-based software. It is growing in revenue and profits and has expenses well under control, resulting in increasing margins. Looking at the trajectory of Microsoft’s results above, it seems that Microsoft somehow defies gravity. The main revenue sources were Server Products & Cloud Services (34% of revenue), Office products and services (23%), Windows (12%), and Gaming (8%). The operating margin stayed at respectable 42%. Microsoft earned $198bn of revenue in 2022, and $72.7bn was net profit after taxes. Let’s now get more clarity on how much money Microsoft makes and the main revenue sources before digging deeper into how Microsoft earns money, its business model, and its revenue model. Recently, Microsoft decided to push into gaming even more by acquiring Activision Blizzard, a renowned developer of popular titles like World of Warcraft, Call of Duty, Candy Crush, and others. The synergies of Microsoft and Gaming were not obvious.Īfter many recent smaller gaming studio acquisitions by Microsoft and the introduction of Game Pass and Xbox Cloud Gaming, it became much easier to see an opportunity there. After years of trying, Sony was and still is way ahead of Microsoft in console sales market share. For a long time, gaming looked like a weird fit for business-focused Microsoft. ![]() Gaming within Microsoft is mainly about its Xbox platform. Microsoft earned $16bn revenue from gaming, which represents 8% of its total revenue. The only sizable part of Microsoft where consumers are the core focus of its business is gaming. Not only because it means additional billions of revenue without too much additional expense, but familiarity with Microsoft’s products among consumers is even more important than the relatively small revenue it is bringing in. It makes perfect sense for Microsoft to offer Office, Teams, Windows, and other tools to retail customers for reduced price or even for free. Microsoft has many reasons to care that consumers love its products, and it simply cannot afford to ignore consumers. That being said, that does not mean consumers are not essential to Microsoft. ![]() This was true before, is true now, and will be true for the foreseeable future. The range of products and services Microsoft offers to businesses ranges from backend infrastructure used mainly by developers to productivity tools that help business users to do their job.īusiness customers are the primary source of its $198bn of annual revenue and also the main driver of how the company resources are spent. The main point I want to make here is that business customers are at the center of nearly everything Microsoft does. I will get to a more detailed breakdown of the business model and different products and services Microsoft offers later. The paragraph above might sound a little too general, and I agree. The only sizable exception is Microsoft’s Xbox platform. Some of its products are also used by consumers, but business customers are Microsoft’s core focus and the primary source of its $198bn annual revenue. Microsoft makes money by providing cloud resources and a wide range of software to businesses. But are those two products still the main ways how Microsoft makes money? It is known mainly for its Windows operating system and Office productivity tools. Microsoft (MSFT) is one of the biggest companies in the world. How Does Microsoft Make Money: Business Model Explained ![]()
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