Microsoft’s latest set of quarterly financial results sent an unambiguous signal to the industry: its cloud and AI engines remain firmly in the growth lane. In the three months ending in June, Microsoft’s overall revenues leapt by 18%, reaching $76.4 billion compared to the same period a year earlier. This impressive momentum is turbocharged by a 27% surge in Microsoft Cloud revenue, rocketing to $46.7 billion—a figure that cements Microsoft’s leadership as one of the world’s dominant public cloud providers.
Within its Intelligent Cloud segment, revenue grew by 26% to $29.9 billion. This division—home to Azure, server products, and enterprise services—is arguably the epicenter of Microsoft’s next chapter. Azure and related cloud services posted 39% growth, reflecting both new workload migrations and the mounting demand for AI-powered computing. Server products and cloud services upheld this trajectory with 27% year-over-year expansion.
The company’s deep integration of artificial intelligence is another major growth lever. “It turns out that we’re still not anywhere close to the finish line,” CEO Satya Nadella asserted, underscoring the magnitude of the opportunity. The recent decision by Nestlé to migrate its massive, regionally fragmented SAP operations from six on-premises datacenters to Azure encapsulates the kind of enterprise wins Microsoft is engineering at scale. Nestlé’s deployment of “Rise with SAP” on Azure not only highlights the practical appeal of Microsoft’s platform but also demonstrates a strategic bet on hybrid-cloud transformation—a space where Redmond holds distinct advantages.
Nadella’s commentary around AI is equally telling: “If you even subscribe to the point of view that intelligence is basically lots of compute, that means compute is going to grow, and you’ve got to use it as efficiently as possible to just keep creating intelligence.” He suggests that AI workloads—underpinned by data layers, application servers, and accelerating demand for GPU-powered compute—will grow by an order of magnitude, adding to the gravitational pull of the Azure ecosystem.
Microsoft’s Copilot suite, an AI-driven assistive technology embedded across M365 and other flagship products, has rapidly gained enterprise traction. According to industry watchers like Forrester, the accelerated adoption of Copilot is compelling IT leaders to revise old purchasing cycles and digital strategies—cementing Microsoft’s hold on business software and productivity markets.
Traditional M365 commercial products, separate from the recurring cloud slice, saw a 9% uptick—largely fueled by robust demand for Office 2024 transactional licenses. In the consumer category, M365 cloud revenue jumped 20%, following both a strategic price increase in January and an 8% gain in consumer subscribers.
This dual-pronged growth—in both high-value commercial licenses and expanding cloud subscriptions—underscores Microsoft’s deftness at converting its legacy Office franchise into a recurring-revenue engine matched with premium upsells. While many SaaS rivals struggle to bridge legacy products with contemporary cloud models, Microsoft leverages its hybrid DNA to win over IT buyers increasingly tasked with straddling on-premise infrastructure and emerging public cloud paradigms.
The CMA’s final report asserts that Microsoft’s licensing terms have a chilling effect on competition, particularly impacting the ability of cloud rivals like Amazon Web Services (AWS) and Google Cloud Platform (GCP) to win business. “These licensing practices are a feature that, in combination with the other features we have identified, including Microsoft’s large and increasing market share in these markets, further restricts the already limited choice and attractiveness of alternative products and suppliers,” the CMA warned.
The watchdog’s critique centers on how enterprise customers are steered towards Microsoft’s own platforms. Bundled pricing, technical restrictions, and less-favorable terms for hosting its software on third-party clouds are all cited as levers that reduce the viability of switching to alternative providers. This echoes patterns noted by the US Federal Trade Commission (FTC) and European regulators, where concerns about interoperability and customer lock-in have triggered calls for policy interventions.
This lock-in is perpetuated by the stickiness of M365, Teams, and related platforms. It creates a scenario in which organizational inertia, technical entrenchment, and procurement complexity make switching vendors both costly and risky. Critics argue that far from being a transparent marketplace, Europe’s public cloud sector is increasingly characterized by monopolistic tendencies, with Microsoft exploiting its incumbency in productivity software to drive cloud adoption at the expense of more agile—yet often less integrated—alternatives.
CISPE itself had previously been a vocal critic of Microsoft, even initiating antitrust complaints before the European Commission over restrictive software licensing. Although the agreement with CISPE marks a thaw in relations for some, it has generated friction within the broader cloud services community, particularly among those who see bespoke discounts as undermining the principle of marketplace parity.
Some CIOs have expressed concern that this rapid innovation cadence could force organizational decisions before risk, compliance, and ROI assessments are fully understood. In the words of one Forrester analyst, “The rapid adoption of Microsoft Copilot is forcing the hand of IT decision-makers.” This acceleration, while commercially beneficial for Microsoft, may intensify vendor lock-in, as richer AI features are often accessible only at premium licensing tiers or when hosted within Microsoft’s cloud ecosystem.
This migration illustrates multiple advantages commonly cited in Microsoft’s cloud pitch:
Analyst forecasts and Microsoft’s own commentary suggest that the need for scalable, high-performance infrastructure will only intensify in the coming years. As AI adoption snowballs across industries, Azure’s competitive strengths in backend AI infrastructure could widen its lead, even as the company faces questions about sustainability, cost, and supply chain reliability.
However, questions around software licensing, interoperable standards, and competitive market structure cannot be ignored. Regulatory actions by the CMA and other bodies reflect deeper anxieties in the industry: that unchecked, Microsoft’s consolidation of software and cloud could narrow customer choice in ways detrimental to innovation and cost transparency.
Furthermore, the societal and operational implications of Copilot’s AI-driven automation deserve continued scrutiny. If only those willing to pay premium prices or lock into Microsoft’s services can unlock the most potent AI features, the benefits of generative AI could accrue unevenly across the economy.
Yet, the next phase of cloud computing may require more open standards, cross-cloud interoperability, and new approaches to licensing that weaken dominant players’ leverage over the marketplace. Enterprises—especially those in regulated industries or public sectors—will watch closely for reforms that enable more freedom of choice, easier switching, and fairer contractual terms.
Microsoft’s leadership position is well-earned, but its continued dominance hinges on its capacity to adapt not just to technological changes, but to evolving expectations for competition, fairness, and customer empowerment in the cloud era.
In sum, while Microsoft’s latest results showcase its inertia-defying momentum in enterprise cloud and AI, they also highlight an industry at an inflection point, where exceptional growth coexists with unresolved questions about power, resilience, and the future of competitive innovation. The story of Microsoft in cloud is not just one of market share—but of the delicate balancing act between scaling value and maintaining trust, both in technology and in a fair, open market.
Source: Computer Weekly Microsoft reports massive cloud uptick as CMA questions licensing | Computer Weekly
Cloud Momentum Fueled by Azure and Copilot
Within its Intelligent Cloud segment, revenue grew by 26% to $29.9 billion. This division—home to Azure, server products, and enterprise services—is arguably the epicenter of Microsoft’s next chapter. Azure and related cloud services posted 39% growth, reflecting both new workload migrations and the mounting demand for AI-powered computing. Server products and cloud services upheld this trajectory with 27% year-over-year expansion.The company’s deep integration of artificial intelligence is another major growth lever. “It turns out that we’re still not anywhere close to the finish line,” CEO Satya Nadella asserted, underscoring the magnitude of the opportunity. The recent decision by Nestlé to migrate its massive, regionally fragmented SAP operations from six on-premises datacenters to Azure encapsulates the kind of enterprise wins Microsoft is engineering at scale. Nestlé’s deployment of “Rise with SAP” on Azure not only highlights the practical appeal of Microsoft’s platform but also demonstrates a strategic bet on hybrid-cloud transformation—a space where Redmond holds distinct advantages.
Nadella’s commentary around AI is equally telling: “If you even subscribe to the point of view that intelligence is basically lots of compute, that means compute is going to grow, and you’ve got to use it as efficiently as possible to just keep creating intelligence.” He suggests that AI workloads—underpinned by data layers, application servers, and accelerating demand for GPU-powered compute—will grow by an order of magnitude, adding to the gravitational pull of the Azure ecosystem.
Microsoft’s Copilot suite, an AI-driven assistive technology embedded across M365 and other flagship products, has rapidly gained enterprise traction. According to industry watchers like Forrester, the accelerated adoption of Copilot is compelling IT leaders to revise old purchasing cycles and digital strategies—cementing Microsoft’s hold on business software and productivity markets.
M365: Still Ascending
The commercial side of Microsoft 365 (M365) continued its upward trajectory. Revenue from M365 commercial cloud grew 18%, with the company attributing the average revenue per user (ARPU) gains chiefly to its E5 and Copilot SKU upgrades. Microsoft cited a 6% growth in paid commercial Office seats, driven strongly by upmarket movement in small- and medium-sized business subscriptions as well as frontline worker adoption.Traditional M365 commercial products, separate from the recurring cloud slice, saw a 9% uptick—largely fueled by robust demand for Office 2024 transactional licenses. In the consumer category, M365 cloud revenue jumped 20%, following both a strategic price increase in January and an 8% gain in consumer subscribers.
This dual-pronged growth—in both high-value commercial licenses and expanding cloud subscriptions—underscores Microsoft’s deftness at converting its legacy Office franchise into a recurring-revenue engine matched with premium upsells. While many SaaS rivals struggle to bridge legacy products with contemporary cloud models, Microsoft leverages its hybrid DNA to win over IT buyers increasingly tasked with straddling on-premise infrastructure and emerging public cloud paradigms.
The UK’s CMA Challenges Microsoft’s Licensing Edge
Despite these headline-grabbing numbers, Microsoft faces fresh regulatory scrutiny over its licensing practices—spotlighting the growing power and potential risks associated with its cloud dominance. Days after its financial disclosures, the UK’s Competition and Markets Authority (CMA) issued a long-awaited analysis of competition in the public cloud services sector, and Microsoft’s policies landed in the crosshairs.The CMA’s final report asserts that Microsoft’s licensing terms have a chilling effect on competition, particularly impacting the ability of cloud rivals like Amazon Web Services (AWS) and Google Cloud Platform (GCP) to win business. “These licensing practices are a feature that, in combination with the other features we have identified, including Microsoft’s large and increasing market share in these markets, further restricts the already limited choice and attractiveness of alternative products and suppliers,” the CMA warned.
The watchdog’s critique centers on how enterprise customers are steered towards Microsoft’s own platforms. Bundled pricing, technical restrictions, and less-favorable terms for hosting its software on third-party clouds are all cited as levers that reduce the viability of switching to alternative providers. This echoes patterns noted by the US Federal Trade Commission (FTC) and European regulators, where concerns about interoperability and customer lock-in have triggered calls for policy interventions.
European Cloud: Deepening Microsoft Dependency
Research compiled by global economic consultancies and cited in sector studies underscores the tight grip Microsoft’s cloud-based productivity tools maintain over public sector organizations across the European Union. According to OCC, a Berlin-based consultancy, many public entities are “sleepwalking” into deep dependence on cloud suppliers—chief among them Microsoft.This lock-in is perpetuated by the stickiness of M365, Teams, and related platforms. It creates a scenario in which organizational inertia, technical entrenchment, and procurement complexity make switching vendors both costly and risky. Critics argue that far from being a transparent marketplace, Europe’s public cloud sector is increasingly characterized by monopolistic tendencies, with Microsoft exploiting its incumbency in productivity software to drive cloud adoption at the expense of more agile—yet often less integrated—alternatives.
Licensing and Fair Competition: A European Flashpoint
Microsoft’s licensing agreements have repeatedly become a flashpoint in European cloud politics. In a recent development, Microsoft signed a deal with CISPE, a cloud trade association, to offer more agreeable pricing for CISPE’s members—prompting a backlash from other cloud players and EU policy groups. Critics allege that such arrangements amount to preferential treatment, further tilting the playing field in Microsoft’s favor.CISPE itself had previously been a vocal critic of Microsoft, even initiating antitrust complaints before the European Commission over restrictive software licensing. Although the agreement with CISPE marks a thaw in relations for some, it has generated friction within the broader cloud services community, particularly among those who see bespoke discounts as undermining the principle of marketplace parity.
The Copilot Effect: Enterprise Transformation or Forced Hand?
The meteoric rise of Copilot as a must-have feature set across M365, Dynamics 365, and even Azure DevOps is not without its caveats. Industry analysts at Forrester and Gartner have highlighted how Copilot’s AI-powered capabilities—in automation, content generation, and workflow streamlining—are influencing IT buying decisions beyond traditional upgrade cycles.Some CIOs have expressed concern that this rapid innovation cadence could force organizational decisions before risk, compliance, and ROI assessments are fully understood. In the words of one Forrester analyst, “The rapid adoption of Microsoft Copilot is forcing the hand of IT decision-makers.” This acceleration, while commercially beneficial for Microsoft, may intensify vendor lock-in, as richer AI features are often accessible only at premium licensing tiers or when hosted within Microsoft’s cloud ecosystem.
Customer Stories: Nestlé and the Practical Realities of Cloud Migration
Nestlé’s migration to Azure, described by Nadella as “a classic example,” demonstrates the business and technical realities at play. The global food giant decommissioned six legacy, distributed datacenters, choosing Azure as the unified platform for its SAP ERP workloads. By adopting “Rise with SAP on Azure,” Nestlé not only modernized its sap landscape but also adopted a cloud-native operational model—reducing infrastructure overhead and enhancing future scalability.This migration illustrates multiple advantages commonly cited in Microsoft’s cloud pitch:
- Simplified Operations: By consolidating regional datacenters, enterprises reduce operational complexity.
- Enhanced Flexibility: Azure’s global availability and deep SAP partnership enable smoother workload transitions.
- Modernized IT: Nestlé’s move was as much about operational transformation as about technology; modern cloud architectures allow for real-time business insights and agile scaling.
AI Scale-out and the GPU Frontier
AI’s hunger for compute and storage is driving unprecedented investment across hyperscale datacenters. Nadella noted, “Every GPU requires storage and compute.” The relentless pace of large language model development and inferencing workloads has direct implications for Azure, which is investing heavily in Nvidia and AMD GPUs, novel networking fabrics, and advanced cooling solutions to meet surging customer demand.Analyst forecasts and Microsoft’s own commentary suggest that the need for scalable, high-performance infrastructure will only intensify in the coming years. As AI adoption snowballs across industries, Azure’s competitive strengths in backend AI infrastructure could widen its lead, even as the company faces questions about sustainability, cost, and supply chain reliability.
Risks on the Horizon: Regulation, Competition, and Customer Trust
Microsoft’s growth is enviable, but its business practices invite increasing scrutiny from global regulators, competitors, and advocacy organizations.Antitrust and Regulatory Environment
- UK’s CMA: The current investigation is only the latest in a series of regulatory actions targeting Microsoft’s cloud conduct. Should further reforms or regulatory mandates follow, Microsoft could be forced to decouple software and cloud licensing further, with downstream effects on pricing and product bundling.
- EU and US Watchdogs: Both territories are exploring new digital market rules aimed at curbing self-preferencing and ensuring software can be ported easily between competing clouds. Microsoft’s case is often cited as a litmus test for how these rules might be enforced.
Market Risks
- Intensifying Competition: Amazon, Google, and a host of specialized cloud providers continue to eat into segments of Microsoft’s customer base—notably in AI, analytics, and open-source workloads.
- Customer Backlash: While many enterprise customers appreciate Microsoft’s all-in-one offerings, some are pressing for greater interoperability and modular pricing, fearing the long-term costs of single-vendor dependency.
Innovation Paradox
- Fast-paced Rollouts: Microsoft’s ability to iterate quickly—especially in areas like Copilot and Azure Machine Learning—strengthens its value proposition. However, enterprise buyers remain cautious about operational readiness, ethical AI, and the lack of cross-cloud parity in some new offerings.
Critical Analysis: Strategic Mastery or Monopolistic Overreach?
The blend of vertical integration—from productivity tools to AI infrastructure—gives Microsoft competitive firepower few can rival. Its strategy to use existing software dominance as a bridge to hybrid cloud and AI-native futures has, so far, yielded impressive commercial returns. Copilot’s success, the embrace of Azure for transformative workloads like SAP, and the flexibility to support both legacy and cloud-native environments have made Microsoft a dependable bet for enterprises facing cloud migration uncertainty.However, questions around software licensing, interoperable standards, and competitive market structure cannot be ignored. Regulatory actions by the CMA and other bodies reflect deeper anxieties in the industry: that unchecked, Microsoft’s consolidation of software and cloud could narrow customer choice in ways detrimental to innovation and cost transparency.
Furthermore, the societal and operational implications of Copilot’s AI-driven automation deserve continued scrutiny. If only those willing to pay premium prices or lock into Microsoft’s services can unlock the most potent AI features, the benefits of generative AI could accrue unevenly across the economy.
Looking Forward: Toward Open, Competitive Cloud Futures
Microsoft has demonstrated a nearly unmatched ability to evolve its business model from desktop productivity to global cloud and AI leadership. It has done so by leveraging scale, integration, and relentless innovation, all while maintaining strong customer relationships and capitalizing on regulatory gray zones.Yet, the next phase of cloud computing may require more open standards, cross-cloud interoperability, and new approaches to licensing that weaken dominant players’ leverage over the marketplace. Enterprises—especially those in regulated industries or public sectors—will watch closely for reforms that enable more freedom of choice, easier switching, and fairer contractual terms.
Microsoft’s leadership position is well-earned, but its continued dominance hinges on its capacity to adapt not just to technological changes, but to evolving expectations for competition, fairness, and customer empowerment in the cloud era.
In sum, while Microsoft’s latest results showcase its inertia-defying momentum in enterprise cloud and AI, they also highlight an industry at an inflection point, where exceptional growth coexists with unresolved questions about power, resilience, and the future of competitive innovation. The story of Microsoft in cloud is not just one of market share—but of the delicate balancing act between scaling value and maintaining trust, both in technology and in a fair, open market.
Source: Computer Weekly Microsoft reports massive cloud uptick as CMA questions licensing | Computer Weekly
