Office 365, Microsoft's (MSFT) cloud application suite, now enjoys a $1.5 billion annual revenue run rate, according to CFO Amy Hood. That impressive figure was largely overlooked when Microsoft announced a $900 million writeoff for the Surface RT tablet disaster yesterday. But let's give the software giant credit: Amid the desktop and mobile struggles, Mirosoft's cloud business continues to accelerate.

In addition to Office 365's momentum, the company says more than 50 percent of Fortune 500 businesses now use the Windows Azure public cloud -- with the enterprise base growing 25 percent in Microsoft's most recent quarter. That's potentially good news as Azure attempts to gain ground against Amazon Web Services (AMZN) while also striving to fend off Google App Engine (GOOG).

Still, it's unclear just how heavily Fortune 500 companies are betting on Azure. It's one thing to open an Azure account and launch some DevTest services on the Microsoft cloud. It's quite another thing to launch enterprise production applications on Azure.

Microsoft faces additional challenges -- including rapidly growing cloud expenses. In fact, CapEx expenses were $700 million higher than Microsoft had estimated to Wall Street just 90 days ago, noted an analyst from JP Morgan who attending Microsoft's earnings call yesterday. His key question: Why the sudden change so dramatically just in this past quarter?

Hood's response: Microsoft added 80 new Windows Azure services in the past quarter. Also, expenses grew as the Office 365 business grew from a $1 billion run rate in Q3 to a $1.5 billion run rate in Q4.

Bigger Questions

Overall, I give Microsoft high marks for its cloud business -- and the company's ability to attract customers to Office 365 and Azure. But I still have some nagging questions, and most are more related to the channel strategy. They include:

  • Office 365 Open: The expanded program for channel partners has some new perks. But Microsoft essentially forces customers (and partners) into year-long commitments and up-front payments. That doesn't make sense in the age of "pay as you go" cloud computing. 
  • Office 365 Revenues: They're growing fast. But how much involves the true cloud suite, and how much involves subscriptions for the desktop productivity suite?
  • Channel Partner Engagement: Microsoft says it has 150,000 Office 365 and cloud resellers enrolled in its partner program. But how many of those partners are active -- say, having deployed more than 10 customers or 100 seats on Office 365 in the  past quarter?

We'll keep poking around for answers to those questions. But the big-picture reality is clear: Microsoft's cloud business continues to accelerate.