Microsoft recently reorganized its global sales force to highlight its focus on selling cloud services instead of standalone software. This reorganization is not the first the company has faced since former CEO Steve Ballmer resigned and Satya Nadella took over in 2014. While the series of structural changes the company has undergone have not immediately resulted in layoffs, the Wall Street Journal reports that thousands of jobs have the potential of being made redundant.
The reshuffle does not appear to have a huge impact on how Microsoft conducts its daily business. The company has already been placing a priority on its Azure cloud computing platform and selling software subscriptions to businesses ever since Nadella, the former head of Microsoft’s cloud division, had been appointed CEO. These changes show a steady shift away from its previous business model of selling one-time software licenses for products like Windows and Office, as these products are not long-term revenue funds. Cloud services instead provide a large portion of Microsoft’s revenue stream by selling software services to enterprises, which does not require as many sales persons in contact with consumers.
Cloud services are attractive because they are able to scale with its user, while also allowing the resources and staff allocation to be managed by whoever is providing the service. Services typically include online data storage and backup solutions, document coloration services, database processing and the management of technical support services. The reason why this is a lucrative option for Microsoft is that it able to constantly provide these services to enterprises, reaching a larger scale than it would if serving consumers, and in return for the services Microsoft maintains a steady revenue stream.
Despite the progress towards cloud services increasing Microsoft’s revenue stream, Microsoft is still trailing behind Amazon with the massive success it has had with its AWS business. Furthermore, Microsoft needs to look out for further competition from Google and its growing cloud division. AWS is the market leader and combined with Azure and Google Cloud Platform the three of them make up the fronts runners in the field of cloud services.
Accepting that AWS is dominant, Azure outplays Google from a business standpoint, while Google is more popular from a consumer standpoint. It is clear from Azure contribution to Microsoft’s revenue stream that cloud services are its future, and while they continue to constantly improve its services for enterprises, there is an opportunity for growth by also emphasizing on consumer services. This would allow Microsoft to asserts its position as a cloud service provider for enterprises, while also drawing from the user base that mostly utilizes the Google Cloud Platform.
Microsoft has stated that it will now focus on two distinct areas, big enterprise customers, and then small to medium-sized businesses. While the specifics of the changes have yet to be clarified, the sales reorganization was designed to align Microsoft’s resources to meet the need of its customers. Nadella is making some much-needed changes to transition Microsoft away from its old ways of mass sales team selling one-time products to a larger focus on product innovation.
Returning to the potential layoffs, while the magnitude is not yet clear, the cuts are expected to be made in offices globally, as Microsoft tries to slim itself down. Microsoft’s stock has been growing over the past 5 years and is currently up 11% since the start of the year. One can expect a further increase in stock, as there is a trend of stock increasing during layoffs. It seems this reorganization will only be affecting people working in sales.