Office 365 Hits 200 Million Monthly Active Users

Continued Strong Growth in Microsoft’s Commercial Office Suite

As expected, Microsoft updated the number for Office 365 Monthly Active Users in its FY20 Q1 earnings call on October 23 (link to call transcript). And to no great surprise, Office 365 moved the number from the previous 180 million mark reported in April 2019 to 200 million. Why no surprise? Well, as shown in Figure 1, Microsoft has advanced the number by roughly 3 million new users per month since November 2015, when Office 365 counted just 60 million active users. The sustained nature of the growth over four years has been impressive.

The Bigger You Are, The Harder It Is to Grow

Although it’s great to grow at 3 million new users per month, it is a fact of life that growing a large base slows in percentage terms if the same growth in users is achieved, and that’s what we see in the results presented by Microsoft (Figure 2) where Office 365 user growth has declined in percentage terms from 29% a year ago to 21% now. Microsoft could continue its user growth and achieve 230-235 million a year from now, but that percentage growth figure will decline further. Office 365 revenue growth at 36% YoY is weaker than Azure (59%), but there’s no doubt that Office 365 remains the big income stream for Microsoft cloud products.

Maintaining growth might become harder for Office 365 in the future. Factors such as a declining set of Microsoft on-premises customers willing to move into the cloud, competition from a potentially reinvigorated G-Suite under new management, and more complicated migrations (which is why Microsoft is buying companies that help in this process, like Mover.io) create impediments. On the upside, Teams is forging ahead, SharePoint Online is doing well, and Microsoft has great hopes for its Power Platform (maybe not with self-service purchases). It will be interesting to see how quickly Microsoft can push on towards 250 million and then 300 million active users/

Revenue Highlights

Microsoft reported that they grew Office 365 commercial revenue by 25% YoY and earn more per Office 365 user (ARPU = average revenue per user), which indicates that they are convincing customers to upgrade to more expensive Office 365 licenses and add-ons. There has been a big campaign to get customers to buy the Office 365 E5 plan ($35/month versus $20/month in the U.S.), and it looks as if this campaign is successful.

One of the analysts said that we have seen “seat count decelerate” for Office 365 and asked if this and the success in signing up frontline workers would reduce the ARPU. CFO Amy Hood said that she feels very optimistic because of Microsoft’s “ability to continue to move people to higher value SKUs” citing the addition of new features in security, compliance, and collaboration as factors that would convince customers to move to higher-priced plans. Certainly it is the case that, in the recent past, Microsoft introduced many new features for Office 365 E5 than they have for E3.

EMS Moves Forward

Another interesting fact released by Microsoft is that the Enterprise Mobility and Security Suite (EMS) grew 36% (presumably year-over-year) and is now used by 120 million people. Microsoft said that this was due to “Microsoft 365 suite momentum,” which can be translated to be “more people bought the Microsoft 365 suite, which includes EMS.”

EMS includes many useful components for enterprise Office 365 tenants, including Azure Active Directory Premium licenses (needed for features like the group expiration policy (now activity based) and advanced conditional access policies), Intune, Information Protection, and Microsoft Cloud App Security. Overall, it’s a nice package that we can now assume is used in the majority of Office 365 enterprise deployments.

Mentioning On-Premises

Microsoft also reported that the results in Productivity and Business Processes were ahead of expectations “primarily driven by our on-premises Office commercial business.” The note about on-premises business was surprising given the ongoing move of work from on-premises to the cloud. Perhaps lots of customers upgraded servers to the latest on-premises releases to maintain support. No further insight was offered on this point.

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Need more data about the commercial aspects of Office 365? We’ve been tracking the data for years and it’s all in Chapter 1 of the Office 365 for IT Pros eBook.