Microsoft's Office 365 cloud is now a $1 billion business, according to the software giant's Q3 2013 earnings statement. For Microsoft, that milestone proves Office 365's momentum is accelerating. And that's also a big win for Channel Chief Jon Roskill, who wants partners to back the suite. But there's more work to be done when it comes to the Office 365 channel partner program. Here's why.

First, the progress. According to Microsoft's earnings call with analysts today, Office 365 has:

  • a $1 billion annual revenue run rate;
  • strong increase in net seat adds; up 5 times;
  • 1 in 4 enterprise customers now have cloud seats with Microsoft;
  • over 75 of Office 465 enterprise seats are running premium (i.e, higher-priced) versions; and
  • recent wins include City of Chicago and the International Federation of Red Cross.

Office 365 Progress and Partner Challenges

Talkin' Cloud and its sister sites believe Office 365 largely turned the corner with channel partners and customers somewhere in late 2012 or early 2013. Microsoft's decision to kill Windows Small Business Server development was among the recent moves that forced partners to really evaluate their cloud strategies. And the recent Office 365 Open launch allows partners to manage end-customer billing -- a key capability that many customers crave.

Some channel partners seem to be thriving. Ingram Micro (NYSE:IM), which offers a cloud services aggregation capability, points to major Office 365 momentum in Europe. And 365 Command, a management tool developer for Office 365, sounds like it's signing on VARs quickly

Still, the Office 365 Open partner program has at least three challenges:

  • It's only for customer engagements with 250 or fewer seats;
  • It requires a full-year customer commitment and I believe customers (or the partner?) have to pay up-front for the seats.
  • There are too many confusing SKU alternatives to the Office 365 Open partner effort, Talkin' Cloud believes.

Despite those three bullet points, you can't deny Microsoft's progress -- in fact, momentum, with the cloud suite. 

Windows Azure Cloud Momentum?

Meanwhile, Microsoft is making similar claims about Windows Azure momentum -- but the company's presentation slides did not mention revenue figures. Among the Azure milestones:

  • Customer wins involving NBC Sports, 3M and Telenor;
  • Nearly 3 million organizations leveraging Windows Azure Active Directory (Talkin' Cloud wonders if that 3 million is the number of Active Directory objects rather than organizations...).
  • Windows Azure IaaS will reach general availability on April 16; and
  • over 50 new services launched in the past 12 months.

Again, that sounds promising but Microsoft's slides did not mention Azure revenues. Also, Azure will continue to face pricing pressure from Amazon and Google -- where cloud price cuts are the norm.

Still, it's clear Microsoft's cloud momentum is helping to offset the company's challenges in the PC, mobile and smartphone markets. Despite an uphill battle vs. Apple and Google Android, Microsoft still managed to deliver record Q3 2013 results -- a fact that lifted Microsoft shares after the earnings announcement today.

Within the halls of Microsoft, Channel Chief Jon Roskill has quietly lobbied for the company to say more about its cloud revenues. That quiet lobbying turned into a loud, definitive statement today.