by Matt Kapko

Microsoft, Google earnings shed light on cloud war

News Analysis
Feb 03, 2016
Cloud ComputingCollaboration SoftwareGoogle

While Microsoft currently has a significant lead over Google in the workplace productivity market, the companies' cloud-based offerings are just a small fraction of their businesses. However, both plan to invest heavily in Office 365 and Google for Work in 2016.

microsoft cloud logo
Credit: REUTERS/Fabrizio Bensch

Microsoft and Google are racing to win business customers and build loyalty in the fast-moving business collaboration and productivity markets. In recently released earnings reports, both companies said they plan to accelerate collaboration efforts and related investments in 2016, to capitalize on the enterprise shift to the cloud.

Only 13 percent of businesses currently use either Office 365 or Google for Work, according to new research from Gartner, which means massive opportunities for growth exist for both Microsoft and Google as more businesses switch to cloud services. 

Gartner conducted a study of nearly 40,000 global companies’ email routing records and found that 8.5 percent in the sample used Office 365 for cloud-based email and 4.7 percent used Google for Work. The remaining companies surveyed used on-premises, hybrid, hosted or private-cloud email services from smaller vendors, according to Gartner.

Large, regulated businesses give Office 365 an edge 

Microsoft and Office 365 lead Google for Work in the majority of markets, particularly in heavily regulated utilities, and energy and aerospace industries, the report says. Google is beating Microsoft, however, in the software publishing, retail, advertising, media, education, consumer products, food and beverage, and travel industries, according to Gartner. 

“Among public companies using cloud-based email, Microsoft is more popular with larger organizations and has more than an 80 percent share of companies using cloud email with revenue above $10 billion,” says Jeffrey Mann, research vice president at Gartner. “Google’s popularity is better among smaller companies, approaching a 50 percent share of companies with revenue less than $50 million.”

Microsoft CEO Satya Nadella recently said the number of Office 365 commercial seats increased by 59 percent year-over-year in 2015, thanks in part to the 80,000 partners who sold Office 365 to small businesses during the company’s second quarter of fiscal year 2016, which ended on Dec. 31, 2015. 

Microsoft surpassed 60 million monthly active users (MAU) of Office 365 in the first fiscal quarter of 2016, and Nadella said MAU continued to grow during Q2 but he declined to provide specific numbers. The company’s Office 365 consumer subscriber number jumped nearly 13 percent during the last quarter to 20.6 million, according to Microsoft.

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In its earnings report, the company disclosed revenue derived from Office 365 business customers, but it did not specify the total number of business subscribers. However, Bryan Goode, senior director of Office 365 product marketing, said more than 50,000 small businesses subscribed to Office 365 every month during the past 22 consecutive months.

Google CEO says cloud is ‘major investment area’ 

Google is currently combining its various cloud businesses — Google for Work, Google Apps and the Google Cloud platform — into one division to be run by VMware cofounder and former CEO Diane Greene, who joined Google in November when it acquired her Bebop enterprise application development platform for $380.2 million. 

During the fourth quarter 2015 earnings call this week, Google CEO Sundar Pichai said the company’s cloud business is growing steadily and gaining traction among enterprises. “We plan to invest significantly in 2016,” he said. “It will be one of our major investment areas.”

In November, Google said more than 2 million businesses at that time paid to use its Google for Work productivity suite, but Pichai didn’t specify how many businesses or individual subscribers currently use the service. Pichai also said the Google Cloud platform hosts more than 4 million applications.

Google is “very seriously committed to the space,” according to Pichai, and it’s earning business from retailers, government agencies and large healthcare providers such as Catholic Health Initiatives, which recently announced plans to move more than 100,000 employees to Google for Work.

“As time goes by, I think we are getting very competitive,” Pichai said. “We are at a point now where the product is ready to be used at scale, and so I expect to get significant traction in 2016 … There’s great buzz at Google around this area, and we continue to heavily ramp up investment here.”