Microsoft’s big bet on subscription services is paying off.
Amy Hood, Microsoft’s chief financial officer, said Thursday during a conference call for the company’s latest earnings that its Office 365 online workplace tools brought in more revenue than the traditional version of Office that’s installed on people’s computers.
This is noteworthy because Microsoft (MSFT), like many other legacy business software vendors including Adobe (ADBE), has been shifting from selling software that people own and download, to selling monthly or annual subscriptions for online software.
More companies are turning to a so-called subscription-as-a-service model that has been popularized by companies like Salesforce (CRM), which provides its sales software to customers from its own data centers. Besides helping customers to better predict future revenue, it also lets them more easily deliver updates and new features and gives them information about how their customers use their products.
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Still, Hood didn’t detail the exact sales numbers of its Office 365 and classic Office software suite, which include Word and Excel, among others. Microsoft only said that Office Commercial revenue, which includes both Office 365 and Office, rose 5% year-over-year to $277 million. The company attributed that 5% growth to more subscriptions to Office 365, and not to sales of the traditional edition. Sales of Microsoft’s Office Consumer segment grew 13% year-over-year to $99 million, which Microsoft said was due to more people subscribing to the consumer version of Office 365.
Whatever the case, the Office 365 milestone underscores Microsoft’s continued push into cloud computing and it selling software and other services that are delivered from its own data centers. But that focus comes with some growing pains.
For example, Microsoft said earlier this month that it would lay off thousands of salespeople as part of a reorganization. During the call with analysts on Thursday, Microsoft CEO Satya Nadella acknowledged the layoffs and said that they were part of a broader overhaul.
“This transformation is ongoing and has been happening over multiple years,” Nadella said.
Hood elaborated further by explaining that the company is trying to recreate the growth of its cloud products in all parts of the business. This means that sales people who have experience selling older products that aren’t performing as well are less valuable than in the past.
“We’re taking that learning of the past 18 months and really applying it at a broader scale across the salesforce—to put those resources where we feel confident that they’ll have a good long-term return in that next phase of transformation,” Hood said.
Microsoft’s shares dropped a little under 1 % to $74.00 in after hours trading on Thursday.