Microsoft 365 is now just Teams
As they do every quarter, Microsoft’s latest set of results (FY22 Q1) contain some interesting nuggets of information relating to Microsoft 365 and Office 365. Possibly the most startling of which is in the earnings transcript. This is Microsoft’s official record of the conversation between CEO Satya Nadella and CFO Amy Hood with market analysts. It contains zero mention of any Microsoft 365 app except Teams. No SharePoint Online. No Exchange Online. No OneDrive for Business, Stream, Planner, or Yammer. Just Teams.
Perhaps Teams is the key ingredient for the $20.7 billion generated for Microsoft Cloud revenue in the last quarter (up 34% in constant currency year-over-year). That is, until you realize that Microsoft charges precisely zero for Teams as the app is bundled into every Microsoft 365 and Office 365 product. I doubt sales of the Teams advanced communications add-on made much of a dent either. The thing is that Teams leverages a huge number of components drawn from across the Microsoft 365 ecosystem. It can’t survive without Exchange Online, SharePoint Online, Azure AD, and a bunch of other services (for background, see this interview with Rish Tandon, VP of Teams development). In a nutshell, the health and success of Teams reflects the overall wellbeing of Microsoft 365, which is why Microsoft senior management might be so preoccupied with talking about Teams.
Despite focusing exclusively on Teams, Microsoft’s leadership gave no further update on the number of Teams usage over the “nearly” 250 million monthly active users claimed in July 2021. They noted that the number of organizations with more than 100,000 Teams users is now 138 (up 12 since July) and that more than 3,000 organizations have more than 10,000 Teams users (no change since July).
Office 365 Usage Grows
Microsoft didn’t give a firm number for the number of Office 365 users either. They noted a 17% year-over-year growth in paid commercial Office 365 seats. The same growth rate was reported in July. Applying six months’ growth to the 296.7 million paid seats claimed in the FY21 Q3 results, we get a figure of around 325 million. Although this is not the same as active users, when comparing the number against Teams usage, you’ve got to ask if the majority of those using Office 365 also use Teams. The answer is “maybe” because it depends on what you consider active use. Microsoft’s telemetry gives them one view; others might say that starting Teams once a month and looking at a single message in a channel or chat is not a strong definition for active use.
Office 365 commercial revenue grew 21% in constant currency, driven by “installed base expansion across all workloads” (people are making more use of all apps). What’s also interesting is that E5 revenue is being driven by “demand for our advanced security, compliance, and voice offerings.” The interpretation here is that customers are willing to upgrade to the Office 365 E5 or Microsoft 365 E5 plans to access features like auto-label policies (retention and sensitivity labels), trainable classifiers, communications compliance, and Teams Voice plans, all of which allows Microsoft to increase its gross margin (up 4% for the Microsoft Cloud segment).
Further evidence of enterprise customers moving from basic Office 365 plans to Microsoft 365 plans is in the 30% growth of enterprise mobility and security (included in Microsoft 365) to 196 million seats.
Azure AD Grows Too
Office 365 makes heavy use of Azure AD. Microsoft says that Azure AD now has 500 million monthly active users, up from the 425 million reported in FY21 Q2. Microsoft also said that “nearly 240 million people have adopted passwordless login to date” but didn’t give any details about a breakdown across commercial and consumer segments.
Hopefully, the move to withdraw basic authentication for email connections in October 2022 will force more Office 365 tenants to move to embrace modern authentication, multi-factor authentication, conditional access policies, and the Microsoft authenticator app. Apart from anything else, going modern will make tenants more secure, stop business email compromise attacks, defend better against password spray attacks, and generally help to repel attackers. There’s lots to like about that.
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