Solid Q4 Results
Microsoft released its Q4 FY21 and overall FY21 results on Tuesday, July 27 and, as always, there were some interesting (and debatable) points raised in the data provided by Microsoft and the transcript of their call with analysts. Here’s my take on the highlights relating to Office 365, Microsoft 365, and Teams:
- Commercial Cloud revenue, which includes Office 365, achieved $19.5 billion in revenue for the quarter ($78 billion annualized run rate) and $69 billion for FY21.
- Office 365 commercial (the enterprise services) revenue grew 25% (20% in constant currency due to the weak dollar). Microsoft attributed this success to “installed base expansion” and “higher average revenue per user (ARPU).”
- Office 365 paid seats grew 17% year over year. Microsoft started to talk about paid seats in the Q3 FY21 results when they reported 296.7 million paid seats. They don’t give numbers for active users anymore. I reckoned that the number of active users was around 264 million three months ago. Given the normal rate of increase observed over the last six years, the number of active Office 365 users is likely around 280 million now with perhaps 315 million paid seats.
- Microsoft 365 E5 is now 8% of the Office 365 commercial base, or around 25 million. Microsoft has had steady success in upselling customers from Office 365 plans to Microsoft 365 plans. The demand for Microsoft 365 E5 probably reflects the need enterprises have for these licenses to access high-end compliance and data governance functionality along with the Enterprise Mobility and Security suite.
- Reflecting the steady reduction in on-premises servers, Microsoft said that they expect a 20% revenue reduction in this area for next year.
- The big surprise came when Microsoft reported “We have nearly 250 million monthly active users” for Teams. More on that number below. What was interesting is the 80 million Teams users who have Teams Phone licenses and make 1 billion calls per month. Although the imminent retirement (July 31) of Skype for Business Online has quickened the transition to Teams, these are impressive numbers.
Overall, strong growth and progress across Office 365, Microsoft 365, and Teams.
That Teams Number
In April 2021, Microsoft reported that Teams had 145 million daily active users. Three months later, the headline number Microsoft is using for Teams is “nearly” 250 million, nearly 80 million of whom use the Teams Phone system. The jump in numbers over time illustrated by in Figure 1 is quite remarkable, especially as factors like work from home and transition from Skype for Business Online were largely baked into previous data.
I have some difficulty reconciling the two numbers. Here’s why:
- The April 2021 number reported daily active users. These are people who use the product day-in, day-out. The July number is for monthly active users. You don’t have to do much to qualify as a monthly active user. Opening the Teams client and accessing a channel is enough. Moving to report monthly active users is simply a way to swell the numbers.
- Microsoft doesn’t breakdown the Teams numbers across Teams enterprise, Teams for education, and Teams for personal life. Even though a Teams personal client will appear in Windows 11, I doubt it contributes much to the overall number. However, in February 2021, Eran Megiddo, Microsoft CVP for Windows Product and Education claimed that 100 million students used Teams. Putting together the 145 million reported (presumably for enterprise users) in April and 100 million student users, we get close to the 250 million now claimed.
- Teams is a huge consumer of SharePoint Online. In December 2020, Jeff Teper said that SharePoint Online has 200 million monthly active users. If Teams has 250 million users now, SharePoint Online must be north of 300 million, and I would expect Microsoft to make a big thing of that achievement.
- If Teams has 250 million commercial users, it’s getting close to the point where every Office 365 user is a Teams user. I don’t consider this credible.
- The number of large organizations using Teams is a good measure of growth. Table 1 compares the figures given in January and July.
|January 2021||July 2021|
|Organizations with > 100,000 Teams users||117||124|
|Organizations with more than 10,000 Teams users||2,700||3,000|
Doing a simple sum, we compute the numbers of users in these organizations in January to be (117*100K) + (2700*10K) = 38,700,000 and in July (124*100K) + (3000*10K) = 42,440,000. Although growing the large organization bucket by 3.7 million is a fine achievement in two quarters, it doesn’t align with a claim to have increased the overall Teams number by 105 million in a single quarter.
There’s no doubt that Microsoft has a very successful product in Teams. There’s no doubt that the number of Teams users is growing strongly. But when Microsoft obfuscates the information it reports (no doubt for competitive reasons), it doesn’t help anyone when they go too far and don’t explain the basis for the numbers given three months ago and now.
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