How Microsoft Makes Money

Intelligent Cloud Generates the Most Profit

Fact checked by Suzanne KvilhaugReviewed by Somer Anderson

Microsoft Corp., one of the world’s biggest tech companies, sells a variety of products and services to support the various efforts of people and businesses in work and life. The source of its greatest amount of revenue is its Intelligent Cloud business segment.

For the AI era, Microsoft is reexamining all of its customer solutions and every part of its tech stack to ensure that it delivers responsibly designed AI and maintains the company’s mission to “empower every person and every organization on the planet to achieve more.”

Microsoft’s products include operating systems, server applications, business solution applications, software development tools, and collaboration applications. It also designs and offers personal computing devices such as PCs, tablets, and gaming consoles.

Its services include cloud-based computing solutions, online advertising, online platforms and content, and consulting.

The foundation for all of Microsoft’s efforts are the core principles of fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.

Key Takeaways

• Microsoft sells computing devices, cloud systems and services, software, and other products to consumers and businesses.
• The company’s Intelligent Cloud segment is the largest source of profit, as well as the fastest-growing.
• Microsoft is focused on delivering AI solutions to customers in a broad swath of industries.
• Some of its many competitors include Apple, Amazon, Meta, Alphabet, Oracle, and IBM.
• Microsoft’s current CEO is Satya Nadella.

Microsoft’s Industry

Microsoft (MSFT) operates in the software industry within the information technology sector. AI continues to drive the software industry at a lightning pace. Microsoft is at the forefront of the development and distribution of AI for application by all types of companies, business industries, people, and countries.

Its three business and reporting segments, Productivity and Business Processes, Intelligent Cloud, and More Personal Computing face competition from such well-known companies as:

Productivity and Business Processes

• Apple (AAPL)
• Cisco Systems (CSCO)
• Meta (META)
• Alphabet (GOOG)
• Okta (OKTA)
• Slack (WORK)
• Zoom (ZM)
• Oracle (ORCL)
• Salesforce (CRM)
• SAP (SAP)

Intelligent Cloud

• Amazon Code Whisperer
• Google AI
• IBM (IBM)
• Oracle
• VMware
• Hewlett-Packard (HPE)
• Adobe (ADBE)
• Apache
• CA Technologies
• Snowflake

More Personal Computing

• Apple
• Amazon (AMZN)
• Meta
• Tencent
• Nintendo
• Sony

Note

Microsoft is the largest company in the world as measured by market cap.

Microsoft’s Financials

As of May 2024, Microsoft’s market capitalization was $3.07 trillion.

Microsoft’s 2023 annual report reported the company’s financial results for the 2023 fiscal year (FY). Additionally, on April 25, 2024, the company announced financial results for the quarter ended March 31, 2024.

Revenue

For FY 2023, revenue was $211.91 billion, an increase of 7% over the previous year’s $198.27 billion. For the third quarter of FY 2024, revenue was $61.9 billion, an increase of 17% over the previous year’s third quarter.

Net Income

For FY 2023, net income was $72.36 billion, a drop of 1% from the previous year’s $72.73 billion. For the third quarter of FY 2024, net income was $21.9 billion, an increase of 20% over the previous year’s third quarter.

Operating Income

For FY 2023, operating income was $88.52 billion, an increase of 6% over the previous year’s $83.38 billion. For the third quarter of FY 2024, operating income was $27.6 billion, an increase of 23% over the previous year’s third quarter.

Revenue From Business Segments

Microsoft divides its business into three segments for the purpose of operating and reporting. These segments are Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

Underscoring the financials of the Intelligent Cloud segment, CEO Satya Nadella wrote, “Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry.” In addition, for the third quarter of FY 2024, Microsoft Cloud revenue was up 23% year over year, at $35.1 billion.

Productivity and Business Processes

This segment offers a portfolio of products designed to enhance corporate productivity, communication, and information services. One of its major products is Microsoft’s Office software suite, including both the commercial and consumer divisions. The segment also includes business solutions products such as Dynamics 365, as well as the professional networking site, LinkedIn.

For FY 2023, Productivity and Business Processes generated $69.3 billion in revenue, up 9% over the previous year. Operating income was $34.1 billion, an increase of 15% over the previous year.

For the third quarter of FY 2024, revenue was $19.6 billion, an increase of 12% over the same period the previous year. It was driven by Dynamics products and cloud services which increased 19%. Operating income for the quarter was $10.1 billion, up about 17%.

Intelligent Cloud

The Intelligent Cloud segment is comprised of all of Microsoft’s public, private, and hybrid server products as well as cloud services for business. These include Microsoft Azure, SQL Server, Windows Server, GitHub, Enterprise Services, and more.

For FY 2023, Intelligent Cloud generated $87.9 billion in revenue, up 17% over the previous year. Operating income was $37.8 billion, an increase of 14% over the previous year.

For the third quarter of FY 2024, revenue was $26.7 billion, an increase of 21% over the same period the previous year. In addition to the growth of revenue from Microsoft Cloud mentioned above, revenue from Azure and other cloud services grew 31%, which powered the overall revenue from server products and cloud services to a 24% growth. Operating income for the quarter was $12.5 billion, up about 32%.

More Personal Computing

Microsoft describes its More Personal Computing segment as consisting of products and services aimed at putting “customers at the center of the experience with our technology.” The Windows operating system, Surface device, gaming products, and search and news advertising are all included in this segment.

For FY 2023, More Personal Computing generated $54.7 billion in revenue, down 9% from the previous year. Operating income was $16.4 billion, down 20%.

For the third quarter of FY 2024, revenue was $15.6 billion, an increase of 17% over the same period the previous year. Revenue from Xbox content and services grew by 62%. Search and news advertising revenue grew by 12%. Operating income for the quarter was $4.9 billion, up about 16%.

History and Leadership

Microsoft was founded in 1975 by Bill Gates and Paul Allen. It is headquartered in Redmond, Wash.

Gates was a software developer and manager in the company. He stepped away from daily activities in 2008 and resigned from the Board of Directors in 2020. Gates continues to meet with the company’s product teams to discuss a variety of relevant topics, and in particular, artificial intelligence and Microsoft’s role in developing AI’s capabilities for a variety of applications.

Allen was Microsoft’s chief technologist until he resigned in 1983. He passed away in 2018.

In January 2000, Steve Ballmer was named Microsoft’s President and Chief Executive Officer. He left the company in 2014. Satya Nadella has held the position of CEO since 2014. He has overseen an important period of change for the company, during which it has placed a major focus on cloud computing and subscription services, and AI.

Recent Developments

• In May 2024, Microsoft announced its intended investment in Southeast Wisconsin to develop AI-powered economic activity, innovation, and job creation. The amount of $3.3 billion will go to cloud computing and AI infrastructure, an AI co-innovation lab that will focus on manufacturing, and a program to train more than 100,000 Wisconsin residents in AI.

• In April 2024, Microsoft announced an investment of $1.7 billion to build new cloud and AI infrastructure in the nation of Indonesia. It will also offer training in AI for 840,000 people. The investment is the largest Microsoft has ever made in Indonesia. Microsoft’s goal is to assist the Indonesian government in achieving its Golden Indonesia 2045 Vision of developing the nation into a “global economic powerhouse.”

• In March 2024, Microsoft and NVIDIA merged their efforts to deliver the capabilities of generative AI, the cloud, and accelerated computing to companies focused on healthcare and life sciences. Microsoft Azure, NVIDIA DGX Cloud, and the NVIDIA Clara computing platforms and software will be used to improve patient care.

What’s the Value of a Share of Microsoft Stock?

On May 10, 2024, a share of Microsoft was trading at $413.86.

What’s Microsoft’s Primary Focus Now?

As with other technology companies, Microsoft has dramatically increased its efforts to develop artificial intelligence for use by people and companies. One of its goals is to design a natural language for a more intuitive human-computer interface and a new reasoning engine.

Does Bill Gates Still Run Microsoft?

No, Bill Gates left behind day-to-day business activities at Microsoft in 2008. He resigned from the Board in 2020. Now, he focuses a lot of time on the Bill and Melinda Gates Foundation.

The Bottom Line

Founded in 1975 by Bill Gates and Paul Allen, Microsoft is the world’s largest technology company today, measured by market cap.

It offers products and services related to, among other things, software, business applications, cloud computing, gaming, and online advertising. It invests heavily in AI.

The greatest amount of revenue for the company comes from its Intelligent Cloud business segment.

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