Microsoft has changed: 4 things to know about how it makes money

This is historic for Microsoft. The firm has unveiled its financial results and we discover a new distribution of its income. The economic model of the giant is no longer the same.

Like many firms, Microsoft presented the financial results for its quarter, the first of its 2023 fiscal year. Behind the figures hide several profound changes for the firm that must be analyzed. Unsurprisingly, Microsoft is doing very well with 17.6 billion dollars in profit for 50.1 billion dollars in sales, in just three months.

The cloud exceeds 50% of the group’s revenues

First element to note, for the first time, the turnover from services operating in the cloud (Azure, the enterprise version of LinkedIn, Office 365 and Dynamic 365) accounts for more than 50% of Microsoft’s revenue. Previously, the distribution between services in the cloudservices for companies outside the cloudthe sale of Windows and consumer devices was more balanced.

It’s been a while since this trend began within the group, and this quarter marks its realization. It was until then one of Microsoft’s strengths among the giants not to be dependent on a single segment, unlike advertising at Google and Meta (Facebook) or the sale of devices for Apple.

The effect of Covid has passed: the PC is in decline

What helped the cloud to exceed 50% of Microsoft’s revenues, it is also the decrease of 3% recorded in the sector intended for consumers. In this section, the firm includes sales of Windows, its Surface PCs, Bing and Xbox gaming. In short, everything that is intended for the general public.

Behind this 3% decrease is above all a 15% drop in Windows-related revenues and for good reason: far fewer PCs are now sold than during the full Covid crisis which had generated a boom in the sector. We knew that the PC sector was in decline and so it makes sense to see Microsoft announce a drop in revenue from Windows, the sector leader.

Series S and Game Pass strategy works for Xbox

On the general public side, however, there is good news from Microsoft on the gaming side. While gaming is seeing weak growth of 4%, it’s still positive, as Microsoft notes a decline in content-related revenue first and third party. In other words, fewer video games are sold in the Xbox ecosystem, and Microsoft therefore receives fewer commissions, but the firm is doing well thanks to the increase in console sales and Game Pass subscriptions.

The giant has not released a figure for the number of Xbox Game Pass subscribers, but notes that it is this subscription that drives gaming results up.

Regarding console sales, we must in particular point the finger at sales of Xbox Series S consoles, Microsoft’s very accessible console. In the call for investors, Satya Nadella, the boss of Microsoft, indicated that more than 50% of the customers of this console were newcomers to the Xbox ecosystem.

Microsoft’s strategy of marketing two next-generation game consoles, one of which has an easily integrated and very affordable design, seems to be bearing fruit.

The victory of subscription formulas

The Game Pass is not the only subscription that Microsoft is satisfied with its results. We can also read that the consumer version of Microsoft Office, soon to be renamed Microsoft 365, continues to grow. Here, the firm gives figures: there are 61.3 million subscribers to Microsoft 365. We are not talking here about Office 365 for businesses, but about Microsoft 365 Individual or Family subscriptions.

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