Microsoft Corporation (NASDAQ:MSFT) has been facing quite a few headwinds lately. Research firm IDC reported the largest year-over-year decline in PC sales last month. Forecasters expect the decline to continue with the proliferation of mobile devices.
Microsoft showed up late to the mobile game, and still trails Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) by a huge margin. Meanwhile Windows 8 has largely failed to become the catalyst for the PC market many expected it to be as Windows sales remained flat last quarter.
However, Microsoft Corporation (NASDAQ:MSFT)’s cloud-computing solution, Windows Azure, surpassed $1 billion in revenue in the last year and is growing fast. Could cloud computing be the saving grace for Microsoft?
Bursting onto the scene
Microsoft Corporation (NASDAQ:MSFT) started offering its Platform as a Service in 2010, again late to the game. Amazon.com, Inc. (NASDAQ:AMZN) had been offering its servers to developers since 2006. Google Inc (NASDAQ:GOOG) wasn’t too far behind, releasing its App Engine in 2008.
But unlike its slow growth in mobile, Microsoft Corporation (NASDAQ:MSFT) has been able to grow Azure to a 20% market share – more than Google’s, but significantly trailing Amazon’s 71%. Azure subscriptions have grown 48% in the last six months.
Last month, Microsoft unveiled the addition of Infrastructure as a Service to the Azure suite, and vowed to match Amazon.com, Inc. (NASDAQ:AMZN)’s pricing. Since then, the company added 10,000 new subscribers.
Microsoft Corporation (NASDAQ:MSFT)’s fantastic growth in cloud computing led Forrester Research analyst James Staten to estimate Microsoft could command 35% of the market by next year while doubling its current revenue. That would make Microsoft a realistic threat to Amazon’s dominance, and relegate Google to the sidelines.
But it’s unlikely Microsoft will be able to take much business away from Amazon or Google Inc (NASDAQ:GOOG). Switching costs are just as significant, if not more, in the enterprise world as in the consumer world. Even after giving away free software to cloud users, Microsoft couldn’t convince many companies to switch despite its new price and capability parity with Amazon.com, Inc. (NASDAQ:AMZN).
It’s really battling for the next $25 billion in market share. Gartner expects the Infrastructure as a Service to be the fastest growing part of the cloud market over the next five years climbing from $6.17 billion last year to over $30 billion by 2017.
That’s why Microsoft Corporation (NASDAQ:MSFT) announced its entry into the segment last month — again, late to the game. Google announced its IaaS product nearly a year ago. Rackspace Hosting, Inc. (NYSE:RAX), and its consortium of OpenStack partners, have been carving out a nice sized chunk of the market for some time now. And of course, Amazon still dominates the market.