Microsoft’s big bet on cloud, partnerships is finally paying off

Leveraging the cloud to enlarge its relationship with customers like Thyssenkrupp has been a key to Nadella’s strategy, and it has paid off. Microsoft shares are up 180% since Nadella took over, and its market cap edged above $800 billion for the first time earlier this month.

Microsoft CEO Satya Nadella gestures as he speaks during his keynote address in San Francisco, California. (Reuters)

In the elevator industry, breakdowns are bad for business.

So when Thyssenkrupp North America needed help predicting when to service its lifts, it turned to Microsoft Corp, a partnership that illustrates how Microsoft's chief executive, Satya Nadella, has leveraged the cloud to grow its own business.

A 2014 meeting between the leadership of the North American operations of Germany's Thyssenkrupp AG and newly installed Microsoft CEO Nadella led to MAX, a predictive maintenance service built on Azure, Microsoft's cloud-computing platform, which has since been used to connect the elevators of 41,000 Thyssenkrupp customers to the cloud.

Before that meeting, the company's relationship with Microsoft consisted largely of renewing its license for Windows software. Since then, Thyssenkrupp North America's spending with Microsoft has more than doubled, CEO Patrick Bass told Reuters. "Our IT spend as a whole total is going down, and yet our capabilities and our total spend with Microsoft have substantially increased."

Leveraging the cloud to enlarge its relationship with customers like Thyssenkrupp has been a key to Nadella's strategy, and it has paid off: Microsoft shares are up 180% since Nadella took over, and its market cap edged above $800 billion for the first time earlier this month.

When it reports earnings on Thursday, the tech giant is once again expected to post banner results, fueled by its fast-growing Office 365 productivity suite subscription service and the Azure cloud computing business.

Its work with Thyssenkrupp illustrates the success Microsoft has had in moving from its traditional licensing model to an emphasis on partnerships and subscription-based cloud-computing products and services.

Bass said Thyssenkrupp has flagged 26 digitisation projects, and today every single one "has some touch point into the tech platforms of Microsoft."

Thyssenkrupp has "gone from being a producer of things and a servicer of things to selling things as a service," said Sam George, Microsoft director of Azure IoT engineering. "They've gone through quite a transformation."

George said he has accompanied Nadella on several customer visits. Microsoft has entered similar partnerships with companies including Kroger Co, Starbucks Corp , Chevron Corp and Adobe Systems Inc. The company said 75 percent of Fortune 500 companies have at least three Microsoft cloud enterprise services, up from 70 percent having at least two in 2015.

Since changing the way it reports revenue in late 2015 to emphasize cloud services, Microsoft has seen its Productivity and Business Processes segment, which includes Office 365, go from declining 3% year-over-year in the first quarter of fiscal year 2016 to 28% growth in the first quarter of 2018. Growth in the company's Intelligent Cloud, which includes Azure, has gone from 8% in the 2016 first quarter to 14% in the same period this year

Most recently, Thyssenkrupp North America has been rolling out the Office 365 productivity suite across all of its businesses while encouraging employees to use Microsoft's Teams collaboration software. It is also using Dynamics 365 as its customer relationship management software of choice.

Bass said his company no longer uses private data centers and is on a path to eliminate on-premise computer servers. Already, 50% of Thyssenkrupp North America's compute and storage is deployed on Azure, and that is expected to grow to more than two thirds within the next 12 months.

Among recent projects he's proud of, Bass highlighted the use of HoloLens, Microsoft's augmented reality glasses and associated Azure software, in Thyssenkrupp's stair lift business. HoloLens lets Thyssenkrupp show customers what a stair chair could look like when installed at home, reducing delivery waits from 12 weeks to less than three weeks, Bass said.

"We are going to leverage the services of the Azure cloud platform to its fullest," Bass said.