Business Profile of Microsoft Inc.

All you need to know about Microsoft in Brief.

• Company Name: Microsoft Inc.
• Industries served: PC industry, Cloud Industry, Gaming, Social Media, and Advertising.
• Headquarters: Redmond, Washington, United States.
• Founder: Bill Gates.
• Founded: 1975.
• CEO: Mr. Satya Nadella
• CFO: Amy Hood
• CMO: Chris Capossela
• Markets Served: Global Markets. 
• Leading Markets: United States and Others.
• Number of employees 2021: 181,000
• Global Revenues 2021: $168.09 Billion (Up 18% compared to previous year)
• Net Income 2021: $61.3 Billion
• Market Capitalization: $2.38 Trillion (As of January 13, 2022)
• Research and development expenses 2021: $20.7 Billion
• Marketing Expenses 2021: $20.12 Billion
• Gross Margin 2021: $115.86 Billion

About Microsoft Inc:

Microsoft Chairman & CE0: Mr. Satya Nadella.

Microsoft is among the leading tech brands based in the United States.

The company was founded by Bill Gates and Paul Allen in 1975.

Microsoft is a global tech brand that sells its products and services worldwide.

The company has its headquarters at Redmond, Washington, United States and  operations in several more companies throughout the world.

The United States is the largest market for Microsoft products and services that alone accounts for the largest part of the company’s net revenues (close to 50% in 2021).

No other country or market alone accounted for more than ten percent of the company’s revenues in 2021.

Outside the US, the company has regional operation centers in Singapore and Ireland to support its operations in the European region, Asia Pacific and other parts of the world outside the Americas.

It has more than 60 datacenter regions which include more than 200 physical data centers.

Its datacenters are located across five continents and the company added 15 new datacenter regions in 2021.

Mr. Satya Nadella is the Chairman and CEO of Microsoft. 

Apart from its Windows and Microsoft Office products, Microsoft also generates revenues from cloud computing services, search advertising, gaming products and services and devices including PCs and accessories.

Microsoft has divided its business into three main operating segments and eight main categories of products and services.

The company employed 181,000 full time employees in 2021, of which 103,000 were employed in the US alone.

Its cloud platform is named Azure and is a leading competitor of Google’s Cloud and Amazon’s cloud platform AWS.

Microsoft has made several acquisitions in its history including Linked In, GitHub, Skype and Nokia.

The company is also a leading tech brand holding a very large number of patents.

As of 2021, it had a portfolio of 65,000 patents issued in the US and internationally and around 21,000 pending patents.

Microsoft maintains a heavy focus on research and development to maintain its pace of innovation and competitive edge in the technology sector.

The company generated $168 billion in net revenues in 2021 and spent $20.7 billion on research and development.

Operations and Markets:

Microsoft is a global business with physical operations, data centers and research centers in various corners of the globe.

Microsoft runs its business operations in North and Latin America through its regional offices located in the US mainly.

It has regional offices or operation centers located in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond, Washington, and Reno, Nevada.

The single largest market for Microsoft products is the United States, which accounted for close to 50% of its net revenues in 2021.

However, the company sells its products and services worldwide through physical and digital distribution channels.

The company decided to close its physical stores in 2020 during the pandemic and moved to a digital operating model.

It runs its international operations through two regional centers located in Ireland and Singapore  respectively.

The Ireland regional operations center supports Microsoft’s operations in Africa, Eruope and the Middle East.

Its Singapore based regional operations center supports the company’s operations in Japan, India, Greater China and the rest of Asia Pacific region.

Products and services:

Microsoft’s range of products and services has continued to grow each year.

The company focuses on research and development to improve its products and services portfolio and to maintain its competitive edge.

For the purpose of reporting its financial performance, the company has divided its business operations into three main segments that include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. 

Intelligent cloud was the largest segment in 2021 based on net revenues. The other two segments generated nearly equal net revenues in 2021. 

Microsoft’s Cloud platform has achieved fast growth in recent years driven by advancement of cloud technology and growing use of digital technology across all industry sectors. 

The pandemic also drove faster growth of the cloud industry as businesses across various industry sectors turned towards a digital operating model and use of cloud based resources to cater to changing demand and consumption patterns worldwide.

Productivity and Business Processes:

This segment mainly includes Microsoft’s portfolio of productivity, communication and information services.

According to Microsoft’s 2021 annual report, this segment includes the following:

• Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Skype for Business.
• Office Consumer, including Microsoft 365 Consumer subscriptions and Office licensed on-premises, and Office Consumer Services, including Skype, Outlook.com, and OneDrive.
• LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions, and Learning Solutions.
• Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM, Customer Insights, Power Apps, and Power Automate; and on-premises ERP and CRM applications.

Intelligent Cloud:

This segment includes Microsoft’s public, private, and hybrid products and cloud services for modern businesses and developers.

It mainly includes the following:

• Server products and cloud services, including Azure; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (“CALs”); and GitHub.
• Enterprise Services, including Premier Support Services and Microsoft Consulting Services.

More Personal Computing:

This segment mainly includes the personal computing hardware and software, gaming products and services and search advertising.

It includes the following:

• Windows, including Windows OEM licensing (“Windows OEM”) and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows IoT; and MSN advertising.
• Devices, including Surface and PC accessories.
• Gaming, including Xbox hardware and Xbox content and services, comprising digital transactions, Xbox Game Pass and other subscriptions, video games, third-party video game royalties, cloud services, and advertising.
• Search advertising.

It has classified its significant products and services into eight main categories.

These categories include server products and cloud services, office products and cloud services, Windows, Gaming, Linked In, Search advertising, enterprises, and devices. 

Server products & cloud services and Office products & cloud services are the two largest categories based on net revenues, followed by Windows, gaming and Linked In.

Customers and distribution channels:

Microsoft serves a diverse set of customers from several segments and industry sectors.

Its products and services include computing, cloud computing, advertising, gaming, social media and other services.

Apart from individual customers that include a vast set of workers, professionals, students, teachers and business men, the company serves small and large business enterprises across several sectors.

It offers gaming products for individual users that mainly belong to the millennial and Gen Z segments.

Microsoft’s cloud services target enterprises of all sizes including small and big from both public and private sectors. 

They also target developers and programmers.

Its Windows is the dominant operating system worldwide with a market share of close to 74% according to Statista.

According to Microsoft, there are more than 1.3 billion devices worldwide that use the Windows 10 operating system.

Microsoft’s user base has continued to expand with its expanding portfolio of products and services.

It has continued to find faster growth in the cloud sector as more and more companies are utilizing cloud based resources to serve customers through digital channels.

The company acquired Github and Linked In to target developers and professionals which are among the most important target customer segments of Microsoft.

The company uses both direct and indirect channels to serve its customers worldwide.

However, it has changed its approach to retail since the pandemic.

It closed all its physical stores as the pandemic forced business to shut down physical operations.

The pandemic marked a time of transition for businesses of all sizes including large tech players like Microsoft.

Now, Microsoft relies mainly on digital channels to serve its customers directly.

Customers worldwide can directly access Microsoft virtual workshops, training programs, and products at Microsoft website.

The company operates more than 50 customer engagement centers across various cities throughout the world, which mainly serve to improve customer engagement and brand awareness.

Microsoft uses mainly three channels to serve its customers worldwide and for the distribution of its products.

They include OEMs (Original equipment manufacturers), direct distribution channels, and authorized distributors and resellers.

It has direct distribution agreements with all the leading OEMs like Dell, Hewlett Packard, and Lenovo. 

These OEMs preinstall Microsoft software on their devices for sales to customers worldwide.

Leading PC manufacturers like HP, Dell, and Lenovo sell devices that have Windows and MS Office preinstalled and the capability to subscribe to 

Microsoft also sells its products through lower volume PC manufacturers but without entering into a direct agreement.

It manages its relationship with the small volume PC manufacturers through Microsoft distribution centers. 

Direct sales and distribution channels now also play an integral role in the sales and promotion of Microsoft products and services.

The company mainly uses digital marketplaces and online channels for selling commercial and consumer products.

Its experience centers serve to deepen engagement with customers across various industry sectors.

According to Microsoft’s 2021 Annual Report,

“Many organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (“Enterprise Agreement Software Advisors” or “ESA”). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to those offered through the reseller channel. A large network of partner advisors support many of these sales.”

Microsoft Annual Report 2021.

Microsoft also uses a vast network of distributors and resellers to sell its products to customers worldwide.

Its network of distributors includes licensing solution partners (“LSP”), distributors, value-added resellers (“VAR”), and retailers.

Its licensing solution partners mainly serve the larger businesses.

The distributors sell to value added resellers who sell to small and medium organizations.

According to its 2021 Annual report,

“We distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distribute our devices through third-party retailers. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers, and provide product training and sales support.”

Microsoft Annual Report 2021.

Competitive environment of Microsoft:

Microsoft is a leading tech player and one of the largest brands in the entire industry.

It operates in a highly competitive environment.

Microsoft faces strong competition from the other players in the tech industry.

However, Microsoft enjoys a strong competitive advantage.

There are several players in the cloud, advertising and other industries that compete with Microsoft for users and advertising dollars.

Its cloud platform called Azure faces intense competition from companies including Amazon, Google, IBM, Oracle, VMware, and open source offerings.

Microsoft’s Enterprise Mobility and security offerings also compete with products and services offered by  identity vendors, security solution vendors, and numerous other security point solution vendors.

CA Technologies, IBM, and Oracle offer products that compete with Microsoft’s server applications for PC-based distributed client-server environments.

Microsoft also offers database, business intelligence, data warehousing solutions and system management solutions that compete with server management and server virtualization platform providers like BMC, CA Technologies, Hewlett-Packard, IBM, and VMware.

The other rivals of Microsoft products and services made for developers include  Adobe, IBM, Oracle, and other companies, and also against open-source projects, including Eclipse (sponsored by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails.

Microsoft also makes and sells gaming hardware.  

Its gaming platform competes against the services offered by companies including SONY, Tencent, Epic, Bandai Namco and other gaming platforms.

Microsoft’s Xbox and Cloud gaming services also face intense competition from online gaming ecosystems and game streaming services including the ones operated by Apple, Google, Amazon, Facebook, and Tencent.

Amazon acquired Twitch to strengthen its position in the gaming industry, which it plans to further cement through Amazon Luna.

Amazon is one of the leading competitors of Microsoft in Cloud industry, gaming, and search advertising.

In recent years, Linked In has become one of the significant sources of revenues for Microsoft and helped the tech giant cement its position in the social media industry, where it faces strong competition from the likes of Facebook and Google.

Both Google and Amazon are the leading competitors of Microsoft in the cloud industry.

Apart from these two leading players, the other competitors like Salesforce, Oracle, and Sap.

Microsoft’s MS Office competes with software and global application vendors including Apple, Cisco Systems, Facebook, Google, IBM, Okta, Proofpoint, Slack, Symantec, and Zoom.

Windows enjoys the lion’s share in operating systems, where its leading rival is Apple’s Mac OS.

In the search advertising industry, the leading rivals of Microsoft are Google and Facebook, which both enjoy the lion’s share in digital advertising. 

Other competitors of Microsoft in search advertising including Amazon and Apple apart from several smaller players.

Microsoft is operating in a hypercompetitive environment.

The industry is evolving very fast and to maintain its competitive position, the company maintains a strong focus on technological innovation.

It invests a huge sum in research and development each year to maintain its growth momentum and leadership position in the cloud and other industries.

In 2021, the company spent $20.7 billion on research and development.

Overall, Microsoft is facing intense competition. 

However, due to its strong competitive advantage and intense focus on innovation, it continues to grow its competitive edge against its rivals.

Microsoft’s  financial performance in 2021: A Brief Analysis

Microsoft’s revenues increased significantly in 2021 compared to the previous fiscal.

Net revenues from commercial cloud increased by 34% compared to the previous fiscal rising to $69.1 Billion.

Office commercial products and cloud services revenues increased by 13%.

Linked In revenues increased by 27%.

Overall revenues increased by 18% compared to the previous year, rising to $168.1 billion in 2021 from $143 billion in 2020.

The company experienced growth in revenues across all the three segments.

Microsoft has divided its business into three operating segments including productivity and business processes, intelligent cloud and more personal computing.

The company experienced the strongest growth in the intelligent cloud segment.

Its intelligent cloud revenues increased by 24%, rising to $60 Billion in 2021 from $48.4 Billion in 2020.

Its revenues from productivity and business processes increased by 16% in 2021, rising to $53.9 Billion from $46.4 billion in 2020.

Microsoft’s revenues from more personal computing jumped to $54.09 billion in 2021 from $48.25 Billion in 2020.

Microsoft also experienced significant jump in its operating income in 2021 compared to the previous year.

Check out the table below for Microsoft’s revenues from various operating segments:

Operating Segment	2021	2020
Productivity and business processes	$53,915	$46,398
Intelligent cloud	$60,080	$48,366
More Personal Computing	$54,093	$48,251
Total	$168,088	$143,015

Increased demand for cloud services proved to be a major driver of revenue growth for the company in 2021.