Microsoft provides software, devices, and services across various categories – such as the Windows OS, Office suite of applications, and LinkedIn professional social network – which it licenses, sells, and supports.
Microsoft also enjoys strong growth in cloud computing with Azure and is making significant investments in AI research and development. Here are the main revenue-driving areas at Microsoft.
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Productivity and Business Processes
Microsoft (MSFT) sells an array of software tools and cloud resources designed to assist business customers in becoming more productive, representing one of the critical areas in which it generates most of its annual $198bn in revenue.
This segment includes Microsoft Office products, LinkedIn, Dynamics, and other resources designed to make businesses run and connect more effectively. Furthermore, cloud resources offer productivity tools across various devices and platforms.
Server products and tools such as SQL Server or Windows Server are also included here, with revenue coming primarily from licensing traditional on-premise server products; there may also be some support and consulting revenue generated. As this market is relatively mature, product innovation must take place to expand it further.
Cloud and Enterprise
Microsoft’s business customers – both large and medium-sized ones – account for much of its revenue, including Office licenses, backend server infrastructure, cloud services like Azure, and other options that help businesses scale quickly and efficiently.
No surprise then that most of its revenue – $198bn in 2022 – comes from these two areas. However, it is also essential to acknowledge that Amazon prioritizes consumers – gaming accounts for approximately 37% of revenue generated.
Microsoft is well-positioned to use its strong relationships with developers through open-source libraries like GitHub and its game development studios to build and distribute new products efficiently, particularly within the fast-growing Intelligent Cloud segment, where Azure has established itself as a dominant force.
Devices and the Internet of Things
Microsoft has built strong ties with business customers through its software tools. Their products cover the most common processes, from productivity software to backend infrastructure solutions.
Recent company growth can be attributed to successful investments in cloud infrastructure (Azure) and artificial intelligence (AI), with additional services now offered, such as cybersecurity.
Additionally, Microsoft has established economic moats around its key business segments and products by building an expansive network of partners, salespeople, distributors, value-added resellers, and OEMs. These relationships give Microsoft an advantage in markets with historical ties such as enterprise software, office productivity tools, or gaming, which they now dominate through Xbox.
Microsoft is a multinational technology company that produces software systems, hardware devices, services, and video games. Microsoft serves individuals, small and large businesses of all sizes, and governments worldwide with products like their Windows OS, Office productivity suites, Azure cloud computing services, and Xbox gaming consoles, generating significant income for them. Bing’s advertisements provide another significant revenue source, as do acquired companies like LinkedIn and GitHub, which contribute significantly.
Gaming may seem an unlikely fit for Microsoft’s business-centric nature. However, their ownership of gaming studios and ability to utilize cloud infrastructure positions them perfectly to capture more gaming market profits. Microsoft Gaming contributed over $16bn in revenues in 2021 – the third highest source behind Server products and Office.
Search and Advertising
Microsoft directly sells several consumer-oriented products and services, including productivity tools such as Outlook and Office, cloud infrastructure (Azure), and gaming (Xbox).
Microsoft is increasingly investing in artificial intelligence (AI) via Azure services that developers use as part of its productivity tools. AI represents one key area where Microsoft competes against companies like Google and Amazon and legacy rivals within its organization.
Product revenue includes sales of operating systems, cross-device productivity applications, server applications, desktop and server management tools, software development tools, and video games. Furthermore, Xbox hardware sales and related accessories and search advertising through Bing are included as sources of product revenues.