Microsoft (NASDAQ:MSFT) says Windows Azure is now a $1 billion cloud business. Somewhat similarly, Microsoft's Office 365 platform now has a $1 billion annualized run rate. For cloud intregrators, Microsoft's Azure and Office 365 milestones are impossible to know.

Less than two years ago, Office 365 was a new SaaS platform struggling to find momentum with customers and channel partners. Somewhat similarly, businesses were struggling to understand where Azure fit -- if anywhere -- in the public cloud industry.

Fast forward to the present and Microsoft seems to be competing successfully against Amazon Web Services (AWS), Google Apps, Rackspace Cloud and other industry upstarts. The latest evidence came today from Bloomberg, which reported that Azure has hit the $1 billion revenue mark, according to Curt Anderson, finance chief for Microsoft's server and tools unit.

How did Microsoft gain critical mass in the cloud? The reasons include:

  • Hybrid management tools: Offerings like Microsoft System Center can manage Windows Server and Hyper-V workloads on-premises or in Azure.
  • Hybrid infrastructure software: Active Directory now stretches from on-premises servers into the cloud -- a big win for customers that want access control regardless of where their applications reside. 
  • Complete Suites: The Office 365 suite spans Exchange Online, SharePoint Online, Lync Online and more. Sales of those applications continue to grow by double-digits each quarter. Increasingly, customers want cloud equivalents of those applications. And Microsoft is happy to fulfill that demand.
  • Partner Programs: The Office 365 partner program has gradually improved over the past 20 months or so. Partners can now manage end-customer billing and pricing, using the Office 365 Open approach (though it has some key limitations). Microsoft's Cloud Accelerate and Cloud Essentials partner programs have also trained numerous VARs.
  • Open Platforms: Azure supports a range of open source options including Linux and Ruby on Rails. A decade ago, it would have been difficult to image Microsoft offering that type of third-party support.

Still, Microsoft can't rest on its laurels. Some partners still don't understand how or why they'd move customer workloads to Azure. Others complain that the Office 365 Open partner parameters require up-front payments, 12-months commitments and no more than 250 licenses per customer.

The biggest threat or challenge likely remains Amazon. According to Bloomberg's report:

"About 20 percent of companies tapping the cloud use Azure, compared with 71 percent usage for Amazon, according to James Staten, an analyst at Forrester Research Inc. Within a year, Microsoft can command as much as 35 percent, he said."

The bottom line: Channel partners can't afford to ignore Microsoft's cloud momentum.