How Does Microsoft Make Money? (Not Bill Gates’s Microsoft Anymore)

[Music] we are now 20 years since bill gates stepped down as ceo of microsoft when he stepped down microsoft was a much simpler company making nearly 50 of its revenue or 10 billion from microsoft office at the time the office package included clipit the cartoon paperclip powerpoint and excel the other part of the company was the ubiquitous windows operating system that made over nine billion that was it the xbox had not yet even been released fast forward to 2020 and things have changed its new ceo satya nadella describes microsoft as so microsoft in that sense is a much more diversified portfolio with linkages between them that's i think how we're going to keep going bill gates still has a voice in microsoft but his role is severely diminished well usually when you get a weekend mail from bill you kind of wait and see whether do i really want to open it now or um and i opened it and you know i've been working with bill for a long time and it started by saying wow i've never seen those words from him and never heard those words and he was really thrilled to see us make progress of course he had a long list of other things we need to be working on as well however what is consistent is microsoft's success and under nadella it has greatly increased its value making nearly 53 billion in pre-tax profit in 2020 up from 11 billion in 2000 in late 2020 microsoft fights with other tech titans including amazon and apple for supremacy however unlike these two giants microsoft is in so many different businesses that many may not know what it does anymore this video will go through how microsoft makes money today welcome to the market is open please hit the like button at any time during the video if you are enjoying our content we make financial documentary and educational videos such as this one also check out our second channel tmio tesla satya nadella mentioned that microsoft is now a digital conglomerate with a diverse set of businesses that are seemingly linked together so what are these businesses let's start with the most familiar microsoft office office has continued to grow and it now has over 1.2 billion users and it made over 35 billion of revenue in 2020. surprisingly it is still microsoft's biggest segment in terms of revenue however in 2000 office was 46 of revenue while in 2020 it is only 25 microsoft has continued to improve the software over the years adding new applications like onenote which makes it easier to take notes for students and onedrive which helps store files on the internet it also launched teams in 2017 which is an application for business employees to communicate more easily the idea is that group emails can get messy so this is a way to have organized messages among employees teams has had incredible growth and in april 2020 microsoft announced that it had more than 75 million active users which surpassed many rivals teams also has advanced video calling features such as allowing up to 1 000 people in a call at a time so it also competes with zoom unfortunately it is only available for businesses another difference is that microsoft office now makes 80 of its revenue from a yearly subscription fee compared to 0 in 2000 this subscription model has been lucrative and revenue has grown dramatically but office is not microsoft's only productivity software it also has microsoft dynamics which is designed to help businesses grow the goal of dynamics and products like dynamics are to increase business efficiency in two main ways the first is with customer relationship management software or crm let's explain what a crm is customer relationship management software was originally built to help a company sales people better interact with customers such as tracking customer contact information tracking price quotes and invoices but crm has evolved from this basic idea and now has more features that include chat bots which handle customer concerns and other services including marketing products where software identifies when is the best time to contact clients by email to increase sales so essentially crm is software that helps increase a business's relationship with its customer the other way dynamics makes revenue is through erp software erp stands for enterprise resource planning and this type of software is generally used by a company's financial analysts and operational teams for example analysts can record and analyze accounting entries and then view financials also they can better analyze inventory to improve efficiency and costs dynamics is growing rapidly and it now has over 3 billion in revenue but it is not nearly as big as the leaders in the industry in crm the leader is salesforce and an erp the leader is the mighty german company sap however dynamics should not be overlooked because microsoft has ways to bundle dynamics with its other products as we saw with a recent onboarding of coca-cola also dynamics links well with another microsoft platform that helps businesses connect with customers linkedin linkedin is microsoft's biggest acquisition ever and it was acquired in 2016 for over 26 billion it has grown substantially since it was acquired and now makes over 8 billion in revenue up from 3 billion pre-acquisition linkedin is a rare tech company it is large profitable and for some reason it does not have any competitors linkedin makes money in several ways including charging a company to post jobs offering advertising services and many users actually pay for premium services premium services can help users find jobs more quickly both linkedin and dynamics link well together but what people are most excited about in late 2020 is a different product microsoft's cloud platform called azure but be careful microsoft cloud aficionados will get upset unless you call it azure and this segment has a lot of fans this is because azure is growing rapidly in 2020 it had 20 billion of revenue up from essentially nothing in 2015. its growth is so rapid that microsoft is catching up with amazon web services who is the leader in the cloud space azure now has 18 market share compared to 33 of amazon which perhaps may not sound close but azure had only nine percent in 2016 compared to 50 percent of amazon with its success such an adela has made bold claims about the future saying the question is in order to support all of this we are building the world's computer in azure with azure we have more regions in than any other public cloud but what does this world's computer even mean and what is azure many rightly credit amazon as being well ahead of the curve by launching the first cloud platform amazon web services in 2006 but microsoft was actually secretly working on azure at the same time under the code name red dog so windows azure it wasn't actually originally called that was it that they had what's called red dog red dog no i like red dog i thought that was a great name why age where i don't know why why are you changing red dog was being architected by ray ozzy who is a noted legendary programmer and we discuss his importance to the tech industry in our decline of ibm video aussie joined microsoft in 2006 and he noticed something very unsettling anyways there were there was a lot of pc thinking the pc was still the center of most of how most people thought about things and it was a little scary because i had by that time i had you know a perspective that said there is this transformation happening aussie began architecting azure which was launched in 2009 his vision was that azure would be i mean what it what it really means to me what differentiates it is it's a self-service on-demand um way of accessing computational resources storage resources uh things like that um you know with a with a virtualized abstraction so that that is relatively homogeneous in case aussie's definition of the cloud is unclear let's explain first a self-service on-demand way to access computational resources just means you are using microsoft's computer instead of your own to run something so anyone can log in through the azure portal and set up their own microsoft computer but again what does this even mean well here is an example of a guy using an old laptop that is very slow but his game is running quickly this is because the computation for the game is actually being run on a different computer in the cloud so his computer is only responsible for the internet and the computer screen which is displaying the game his computer is not responsible for any of the complex calculations so this is a clear benefit of the cloud because it means you can run powerful programs without having a powerful computer and one can rent almost any computer they want with any speed or power another benefit is one can pay only for this computer when it's used in addition the cloud allows for near infinite storage for example mobileye an autonomous driving leader is storing hundreds of petabytes of autonomous driving data in the cloud for size references one petabyte is a thousand terabytes and each terabyte is a thousand gigabytes so this is equivalent of about one billion hours of youtube driving videos in addition a user can choose various pricing options depending on how frequently they want to access this data if it's almost never one can pay the cheap archive price or if accessing more frequently the user can pay higher prices the benefit of the cloud is companies can save a lot of money because previously a business had to buy their own computer which they like to call a server a server is just a computer with high reliability high reliability means less blue screens of death meaning less downtime and thus servers are a lot more expensive compared to the typical personal computer but why is buying a server a problem well say you're a flower company with a website what happens on mother's day when traffic greatly increases do you buy a new server just to handle the extra computational power needed for this one weekend previously you would have to do this with a cloud platform you can buy more computation on just mother's day and buy less the next day there are other advantages like being able to buy servers in other countries which can allow for foreign business expansion microsoft points out we have 61 data center regions today more than any other cloud provider and more compliance certifications with 90 plus lots of data centers mean many customers would prefer to use azure as being close to a data center increases their speed then the question becomes if people are just renting commodity servers then why are microsoft and amazon leading the pack well good cloud companies also make a developer's life easier for example on azure you can quickly rent a server and choose between many operating systems to near instantly put them on your computer in the cloud good cloud companies also streamline processes that happen frequently here is an example of someone creating a powerful website more quickly using some pre-built-in features in azure this means building a website is easier because microsoft has already done many of the things like security and ensuring the website manages traffic correctly among many other things people in the cloud industry call this feature a service another service azure offers is to quickly extract your data to build statistical models azure has hundreds of these services which makes developers lives easier in addition large cloud platforms like azure and amazon benefit because many third-party companies want to develop more services on its platform which customers can then buy this is called the marketplace and this helps enhance microsoft's lead growth in the cloud is still accelerating in 2019 the cloud market was estimated to be a massive 260 billion but by 2027 it is estimated to be near 1 trillion an incredible 18 compound annual growth rate so microsoft has plenty of opportunities for growth in azure but one of the reasons it has potential for even more growth than amazon is because many of its customers don't yet use the cloud and these customers are currently using microsoft's server products before there was this thing called cloud many companies bought servers and these servers were stored in their offices or if they were a really big company in data centers microsoft owned this server market this is because many of these clients installed the windows server operating system microsoft made about 8 billion in 2020 from selling the microsoft operating system which was installed on servers it made a further 13 billion selling its database software called microsoft sql server that was also installed on these servers microsoft sql server is one of the most powerful and popular databases in the world and it rivals oracle for leadership databases are critical for businesses to record data but some may wonder why not just use excel to store data and some people even call excel a database however programs like excel have problems storing the massive amount of data required for big business for example excel has only 1 million rows which may sound like a lot until compared to sql server which can store over 50 trillion in addition excel can be easily changed by accident making it unreliable in addition databases benefit because they can quickly find information in humongous data sets here is a microsoft demo where they ask a question from 1 trillion rows of data and in 100 seconds they are able to get an answer to the question and find the average price of certain products owning sql server is an important differentiator for microsoft going forward as it can offer these customers who use sql server but have not yet switched to the cloud discounts to switch to microsoft azure instead of using amazon microsoft also makes about 1 billion in revenue from coding products that are used by developers for example one of these products is github which microsoft bought in 2018 for 7.5 billion github is the largest developer platform in the world and it allows developers to better collaborate and store code people may wonder why microsoft bought this business when there is not a lot of money in coding software but it's actually a strategic way for microsoft to convince developers to use azure why because microsoft specifically makes github better integrate with azure so if you're a developer this makes your life easier then you're happier then you choose azure not amazon web services microsoft also has a growing consulting division that made over 6 billion in revenue this business helps companies better integrate microsoft products but what about the windows operating system the history of windows goes back even farther than office and it goes all the way back to 1985 and it's had many iterations over the years but its final version windows 10 was released in 2015 meaning microsoft will update the software but it will always be called windows 10 from now on windows like office is still very important and it's actually microsoft's second biggest revenue product making over 22 billion in 2020 or 16 of revenue this is still big but it's a lot lower than the 40 percent of revenue it made in 2000 windows is still the dominant operating system with over 88 percent of the personal computer market windows makes money in two ways one there's a license fee from hardware manufacturers like lenovo who sell personal computers and there were over 260 million pcs sold in 2019. however pc sales have been declining so microsoft has boosted windows revenue by convincing businesses to pay around 10 dollars per month for each employee who uses the enterprise version of windows the enterprise version offers more security features such as being able to do a virus check on any employee's computer it also allows for more customization like the leading apps such as the windows store microsoft also made nearly 6.5 billion of revenue in 2020 from selling devices like its surface products the surface line is a bit confusing because it's no longer just tablets with a kickstand microsoft now has many products for example one can buy a surface laptop which does not have a kickstand or one can buy the surface book which does detach okay let's move to microsoft's final two products and some may laugh at the first one and i think i probably did some of my very best work at the company after bill left actually really like what pushed us into bing sustain that investment this was its second ceo steve ballmer while bing is not as big as google it has continued to grow revenue and perhaps microsoft can eventually boost its popularity finally there is the xbox gaming division which had 11.5 billion of revenue in 2020 but this division hasn't grown much since 2009. microsoft's newest console released in late 2020 is called the xbox series x and it faces off against the playstation 5. for a final summary we have attached a free sheet on our patreon page showing all the products we just discussed that you can view and download the link is in the description microsoft is a very different company today it is definitely what its current ceo sacha nadella describes as a company with many different products and linkages so microsoft in that sense is a much more diversified uh portfolio with linkages between them that's i think how we're going to keep going forward all right hey guys i hope you enjoyed the video if you did please hit the like button and subscribe and let us know in the comments what you think is microsoft's most interesting segment you

Channel: The Market is Open

Views: 220,060

Keywords: Satya Nadella, Microsoft, MSFT, AAPL, AMZN, Amazon, Bezos, Ray Ozzie, Ozzie, IBM, Red Hat, RHEL, Azure, Cloud Computing, Windows, SQL, Microsoft SQL Server, SQL Server, Tech, Dynamics, Dynamics 365, Google, Facebook, LinkedIn, Office, Office 365, Xbox, Bill Gates, Gates, Ballmer, Bing, Windows 10, Server, Amazon Web Services, AWS, Open Shift, Git Hub, Tech Giant, Technology, Word, PowerPoint, What is cloud?, AWS vs. Azure, Google Cloud vs. Azure

Id: mINN4M7gNAE

Length: 17min 48sec (1068 seconds)

Published: Thu Oct 08 2020

Reddit Comments

[u/BlueScreenOfTOM]

According to Wikipedia, Microsoft stopped making Money in 2010.

[u/Jethris]

It is not S Q L Server, but Sequel Server!

[u/wff]

Great video thanks for sharing

[u/SteezyCougar]

They do it by locking color choices in their games behind a paywall