Microsoft Corporation (NASDAQ:MSFT) has become the biggest company in the world by market cap. That happened last week when the stock surpassed the market cap of Apple, Inc (AAPL), surging higher to cross back above its key 50-day moving average. Analysts remain very positive on the stock, and the reason behind its resilience and continued ascension may offer a bit of a roadmap for other names in the tech space – IBM and AAPL, we’re looking at you.
The shift has taken about 3 years for MSFT to evolve into a cloud services player. While it is still second to Amazon (AMZN), analysts believe that gap is meaningfully closing.
Microsoft Corporation (NASDAQ:MSFT) frames itself as a company that develops, licenses, and supports software, services, devices, and solutions worldwide. But the real story is how it has transformed itself with a well-played hand in its Office 365 and Azure strategies.
And it’s a much simpler story than it may seem when explained by industry analysts or the company’s own executives.
So, What’s it All Mean?
The vision is basically about transforming from something that makes a product to something that manages a service.
Consider something like Word or Excel. You used to purchase that software and either have it mailed to you on a disc or download it from the internet. Then it would be installed on your computer, and that was that.
Now, you subscribe to it, and it is automatically managed from MSFT, with file storage options, new features, remote access, and other facets. It is a service you pay regularly to have access to.
However, from the consumer point of view, very little is actually different. The main difference is quite simply that you pay more over time and there is never any need to buy the new version.
From the company’s point of view, they make more money and, probably more importantly, customer retention goes through the roof.
Why? Because, as the consumer, there is never that point in the process where the old version is no longer good enough and you decide to buy a new OS or whatever, and you have the opportunity to decide whether to buy a newer MSFT product or to go with a competing brand instead. That’s a product consumption choice.
When it is consumed as a service, that choice moment never happens. It becomes more like the choice given to you by mobile service providers or cable companies. People rarely switch their service provider once it has been established.
So, both retention and margin rise when the same thing is repositioned as a cloud service rather than a software product.
Microsoft is now the most valuable company in the world for a reason. That reason is described above. Other companies are trying to make the same kind of evolutionary transition, but so far, MSFT has pulled it off with the most grace and balance.
Microsoft Corporation (NASDAQ:MSFT) generated sales of $29B, according to information released in the company’s most recent quarterly financial report. That adds up to a year-over-year growth rate of 18.5% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($135.9B against $56.3B).