What is the Business Model of Microsoft? Everyone is using a Windows PC right now, probably a pirated version? Then how does Microsoft make money?
Microsoft is not only about Windows. Of course, it plays a big part in the business. Also, the Operating System business helped it grow as a huge brand.
But what if I tell you that Windows Operating System makes only 15.8% of Microsoft’s revenue?
Also Read | Why Microsoft Allows Piracy in India?
Point to note that Microsoft made $125.84 Billion in Fiscal Year 2019.
How Microsoft Makes Money?
Be it any Tech Giant, none of them relies on a single source of revenue. Similarly, Microsoft has multiple revenue sources in its business model.
Out of thousands of products, a dozen of them flourish.
Meanwhile, others simply die and we never come to know about those products.
So, here are the Revenue Sources of Microsoft.
1] Enterprise-Cloud Services
For those who don’t know what cloud business means: every website or web application needs some space on the Internet.
Remember how your phone needs a memory card? Yes, that’s similar.
To host those webpages, we need huge memory storage devices called servers that run 24×7.
Huge companies like Microsoft, Amazon, Google, IBM, Oracle own these servers because… umm… they have loads of money to build them.
These servers are huge storage devices for us.
Other companies rent this storage on the Internet from these companies. That’s how Microsoft makes money from these servers – by renting them.
According to Forbes, Microsoft is one of the leading companies that provides enterprise-cloud services.
Hence, the estimated annual revenue of $28.3 Billion comes from servers.
Major competitors include Amazon, IBM, Salesforce, SAP, Google, ServiceNow, Workday
2] Microsoft Office
I am very sure that the moment you learned MS Paint on your PC, you jumped to MS Word, then MS Powerpoint, and probably MS Excel later.
That’s how common MS Office is!
The complete MS Office that you use is not free even if you buy a new PC with pre-installed Windows 10. Microsoft has already charged you while purchasing that particular device.
It might appear that most people are using the cracked version of Microsoft Office but that’s not the case globally.
According to the Economics Times, 91% of the Indian PCs are loaded with pirated Microsoft Software.
[Refer: Economic Times Report]
Do you think Microsoft is not aware of this? Well, that’s their strategy to make you paralyzed with its products. Because of this reason, the majority of PC users are not even aware of the free competitor Operating Systems.
[You must read: Why Microsoft allows piracy?]
Eventually, such users end up buying the Microsoft license!
In this way, Microsoft made around $25.4 Billion from MS Office 365. Likewise, Windows makes around 15.8% of Microsoft’s revenue.
3] Public Cloud Computing
Microsoft Azure is a public cloud computing product on Microsoft’s server where users can process their data.
As I mentioned above, the cloud business is huge. But that was meant for enterprises and huge businesses.
Microsoft Azure allows normal users like us to store the data or process the data online. It merely needs some amount of subscription and you are good to go.
You don’t need to burn your own computer’s processor or CPU for your tasks. It will be a burden for Microsoft Azure.
Microsoft Azure made more than $21.8 Billion in FY2019.
[Related Post: Best Cloud Storage Services]
Microsoft is no more a software-oriented company. It produces various devices like laptops, smartphones, PC accessories, and even gaming consoles.
Microsoft Surface series laptops are very premium and stylish devices. I like the Surface series but they don’t fit into my budget! Sad 🙁
Other than laptops, we have well heard about Windows phones which might have failed in India. But they still sell outside India.
While talking about devices, how can we even forget about Xbox? Xbox is one of the leading players in gaming consoles that are loved by the gaming community.
As compared to 100 Million pieces of PlayStation, Xbox might lag with 40 Million pieces. But it is still the second leader with a wide variety of games.
Xbox gaming made roughly $11.4 billion in Fiscal Year 2019. Xbox made it alone.
If we look at other Microsoft devices, they together made $8.9 Billion.
5] Advertising Revenue
If you have a user base, you have no reason to hold yourself from advertising!
With successful Search Engines like Microsoft Edge & Bing and Windows OS, Microsoft has a larger userbase and database than you can even imagine.
Bill Gates never intended to start an advertising business with Microsoft Corp but if it fetches some serious cash, then why not?
Hence, in the single FY2019, Microsoft made $7.63 Billion from advertising.
If you came to this article from my LinkedIn profile, cheers to my LinkedIn family! 🙂
There’s a reason why Microsoft bought LinkedIn for a massive amount of $26.2 Billion in the year 2016.
Nevertheless, LinkedIn managed to fetch an estimated revenue of $3.6 Billion within a single FY2019.
I’ll try to make a separate case study on LinkedIn.
7] Other Businesses along with the Estimated Revenue
- Skype = $1.7 Billion
- List of Software = Unknown (Most of them are free while some are paid)
- Github = $250 Million
These are merely a few to list because mega-companies like Microsoft have their daily acquisitions and sell-outs.
Summarizing: Microsoft Revenue Model
1. Enterprise-Cloud Services = $28.3 Billion Annually
2. Microsoft Office = $25.4 Billion Annually
3. Public Cloud Computing = $21.8 Billion Annually
4. Microsoft Devices = $20.3 Billion Annually
5. Windows = $19.75 Billion Annually
6. Advertising Revenue = $7.63 Billion Annually
7. LinkedIn = $3.6 Billion Annually
8. Rest of the income out of $125 Billion in FY2019 = Other services
Contrary to what people think, Microsoft’s main income source is Enterprise-Cloud Services followed by Microsoft office. The revenue shares as per FY2019 are 22% and 20% respectively.
In FY2019, Microsoft made a net revenue of 125.84 Billion USD.
343 Million USD is the direct amount made by Microsoft in a single day if we take divide its FY2019 Revenue.
Also, we missed a huge part. Microsoft Teams has boomed in 2020 due to the lockdown and WFH culture.
[You might find helpful: Best Video Conferencing Apps For Corporates]
It is going to spike the revenue share for Microsoft and there is no doubt in it. Let’s wait for the latest report of 2020.
So, I hope that the myth of Windows and Microsoft is no more existent now. Microsoft is making money from cloud services because that is the future.