Microsoft anticipates a correction in customer spending on Microsoft 365 and cloud products as employees return to the office, a top executive said. This comes at a time when major hyperscalers such as Microsoft Azure, Google Cloud, and Amazon Web Services (AWS) are experiencing a revenue growth slowdown.
Microsoft's revenue growth in the first quarter was the lowest in five years, according to its Q1FY23 earnings released in October. Microsoft's cloud business Azure, which has boosted the technology giant's revenue growth for years, saw a 35% drop in growth in the first quarter, and the company expects another drop in the second quarter.
“There was an element of imminent correction that we were expecting when employees and organisation move things directly back to office. The technology spend would be kind of looked at because you had to do a lot of ‘out of budget’, ‘out of cycle’ investments just to keep the lights turned on,” Irina Ghose, chief operating officer (COO), Microsoft India, told Moneycontrol.
“Now, when the population is kind of coming back to office and you’re looking at hybrid mode, so instead of spending on infrastructure to keep the overall scale of things moving, people are actually reprioritising the budgets towards what needs to drive the next level of innovation,” she added.
Ghose believes that client investments in newer technologies such as data and AI will enable it to provide competitive differentiation to its customers. Cybersecurity offerings, as well as low-code and no-code platforms, will see increased demand, she said.
Meanwhile, partnering IT services companies such as Tata Consultancy Services, Infosys, Wipro, and HCL Tech, to name a few, are treading carefully, claiming that clients are taking longer to decide on technology spends and projects, despite the overall demand remaining resilient. Most sectors face a challenging macro environment due to inflation, an impending recession in the United States, cross-currency headwinds, and slowing consumer spending, among other factors.
Growth in cloud market
Despite the current dip in cloud spending, Ghose believes that customers will continue to invest in cloud products in order to stay ahead of the curve. Other parallel developments will include the construction of data centre infrastructure, which will enable the cloud market, she said.
“For example, the cloud market currently is poised to grow at a 24 percent CAGR to a $10.8 billion, it’s about $11 billion by 2025. So, the end-user spending on public cloud services is also expected to grow by 30 percent,” she said.
“We invested in our fourth data center in India. In the last two years, the capacity which we have kind of increased is almost double from what it was earlier. Now the data center capacity is doubled, because there’s so much of a need. So, hybrid living, which is kind of the way things will be evolving in the future is very high,” she added.
According to Ghose, India's SaaS (Software as a Service) industry alone is expected to reach a trillion dollars and create half a million jobs by 2030, so Microsoft believes the market and opportunity are immense.
“And on the other hand, we have an end-to-end solution that we put across not just from infrastructure, but the productivity from business application, security, everything put together. And our endeavour has always been that we want to serve our customers for their most mission-critical applications with the Microsoft Cloud,” Ghose said.
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