3 minute read / Jan 24, 2023 /
Microsoft as a Mirror - What We Can Expect for SaaS in 2023
I’m watching public company earnings to identify early weaknesses in the software market. Yesterday, Microsoft announced earnings.
The transcript highlights the major trends in software of 2023. Below, I’ve listed those trends with data & excerpts from the earnings call transcript.
1. Enterprises Have Slowed their Spending, Decelerating Further in December:
| Company | Q-6 CAGR | Q-5 CAGR | Q-4 CAGR | Q-3 CAGR | Q-2 CAGR | Q-1 CAGR | Q-0 CAGR | Guidance |
|---|---|---|---|---|---|---|---|---|
| Microsoft Azure | 50% | 51% | 46% | 46% | 40% | 35% | 31% | 26% |
| Google Cloud Platform | 46% | 54% | 45% | 51% | 35% | 38% | ||
| Amazon Web Services | 37% | 39% | 40% | 40% | 33% | 27% |
Growth is down 15 percentage points or about a third in a year.
We are seeing customers exercise caution in this environment, and we saw results weaken thru December. We saw moderated consumption growth in Azure and lower-than-expected growth [elsewhere].
It’s mostly a US phenomenon so far:
We saw strong execution in many regions around the world, however performance in the US was weaker than expected.
Expected growth across segments is muted with an average of 5% growth across these B2B categories.
| Segment | Expected Growth |
|---|---|
| Productivity | 12% |
| Office Commercial | 6% |
| Office On-Premise | -25% |
| 5% | |
| Dynamics | 13% |
| Intelligent Cloud | 18% |
| Azure | 26% |
| Server | -3% |
| Services | -3% |
2. Spending Won’t Ramp Again Until Optimization Stops in about a Year
Customers are optimizing their cloud spend in 2023.
At some point, the optimizations will end. In fact, the money that they save in any optimization of any workload is what they’ll plow into workloads. And those workloads will start ramping up.
I don’t think we’re going to take two years to optimize. But we’re going to take this year to optimize and then, as we optimize, the new project start. The new project starts don’t start instantly at the peak usage.
3. Machine Learning is a Secular Platform Change & a Growth Driver for Software
The age of AI is upon us, and Microsoft is powering it.
Just last week, we made Azure OpenAI Service broadly available, and already over 200 customers – from KPMG to Al Jazeera – are using it. We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time.
Azure ML revenue alone has increased more than 100 percent for five quarters in a row
4. Microsoft’s Ability to Cross-Sell its Suite is Driving Dominance in Many Categories
GitHub is now home to 100 million developers.
Atlassian has 10m active users compared to 90m actives at Github.
Power Automate has more than 45,000 customers – from AT&T to Rabobank – up over 50 percent year-over-year.
UIPath, the leader in RPA reported 10,650 customers in October 2022.
Teams surpassed 280 million monthly active users this quarter… And we continue to take share across every category, from collaboration, to chat, to meetings, to calling.
About 70% of commercial Office subscribers use Teams.
Over the past 12 months, our security business surpassed $20 billion in revenue, as we help customers protect their digital estate across clouds and endpoint platforms.
This is about 12% of the global information security market according to Gartner.
Massive software vendors are indexes of buyer behavior. Yesterday’s call reinforces the cost-focused mindset of the buyer & the lower growth rates startups should expect.
Machine learning shines as the one bright spot amidst declining growth.