Satya NadellaMicrosoft CEO Satya
Nadella.
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  • Microsoft’s commercial cloud business just hit $20
    billion in annualized revenue, a milestone CEO Satya Nadella
    set out for the company in 2015.
  • The growth of Microsoft’s cloud business has been
    boosted by the cloud-based version of its Office 365
    productivity suite and its Azure cloud
    computing service.
  • However, Azure still lags behind Amazon Web Services
    cloud in terms of revenue.

Three years ago, Microsoft
CEO Satya Nadella called his shot
: the company’s
so-called commercial cloud business would hit $20 billion in
annualized revenue by the end of its 2018 fiscal year.

At the time, that seemed an ambitious goal. Microsoft’s
commercial cloud business was then generating $6.3 billion
in sales on an annualized basis, which it defined as how
much revenue the business would take in if it continued on the
pace it set in the last month of its most recent
quarter. 

But on Thursday, Microsoft made good on Nadella’s
promise. In its fiscal
first quarter earnings report
, the company said it
has already met and exceeded its $20 billion goal with three
quarters to spare.

In the company’s most quarter, Microsoft’s commercial
cloud businesses recorded $5 billion of revenue, at a 57%
gross profit margin. Gross profit margin is the portion of a
business unit’s revenues that are remaining after you subtract
its direct costs of making or offering its goods or
services.

Going forward, Microsoft will no longer disclose
the annualized revenue figure for its commercial cloud business.
Instead, it will just reveal its recorded revenue.

Microsoft’s commercial cloud business has been on something
of a tear. Already last quarter, the business’ annualized revenue
was at
94.5% of its $20 billion goal
.

The software giant’s commercial cloud business is anchored by
Azure, its cloud computing service, and by the Office 365
productivity suite, both of which are growing like crazy. Azure
revenue jumped 90% in the company’s fiscal first quarter,
compared with the same period a year earlier. And revenue from
the business-targeted version of Office 365 grew 42% over
the same period. 

Still playing catch-up to Amazon

And Microsoft had other good news for shareholders regarding its
Office 365 business. For the first
time, the revenue the company generates from selling
subscriptions to the cloud version of its productivity suite was
higher than the revenue it brought in from selling licenses to
the traditional versions of Office.

Still, even with the growth and success of Microsoft’s cloud
business, it’s still trailing behind Amazon. The e-commerce
company’s Amazon Web Services unit is on track to bring in
$18 billion of revenue in 2017.

Nominally, that’s less than Microsoft commercial cloud
revenue, but it’s not an apples-to-apples
comparison. AWS competes directly with just Azure. But
revenue from Azure is just one component of Microsoft’s total
commercial cloud sales.

Microsoft has dedicated itself to closing the gap. Whether
it core cloud computing business will ever overtake Amazon
remains to be seen. But it definitely looks like the battle won’t
be quieting down anytime soon.

Get the latest Microsoft stock price here.

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