A fascinating graphic shows were Microsoft (MSFT) makes money, how much profit it makes and tax paid.
As you can see, the biggest money maker for Microsoft isn’t the traditional cash-cows Windows and Office.
It’s Microsoft’s cloud computing services “Intelligent Cloud” which covers a lot more than just their Azure cloud system. Intelligent Cloud includes “public, private, and hybrid” server and cloud products. And crucially the Client Access Licences (CAL’s) related to those products.
See Microsoft’s description of their current Segment Information to see how they group products into different segments. Microsoft Office and Microsoft 365 get lumped in with business services under the ‘Dynamics’ name and LinkedIn. Windows is just part of ‘More Personal Computing’ along with Surface, Xbox, Hololens and other hardware plus games and advertising.
Microsoft pays about 18% tax on its Gross Profit.
Why the big push to sell Microsoft 365
The best margins (a whopping 51%) come from the ‘Productivity and Business Processes’ segment which includes Microsoft 365. With margins like that, you can understand why they push Microsoft 365 ‘subscription’ plans so hard and downplay the perpetual license Office 2021.
Compare the profit margins
Microsoft’s net profit is $17.6 billion or a very comfortable 35% margin which is way ahead of the other big tech names:
- Apple $20.7B or 23% margin
- Alphabet (Google) – $13.9B or 20% margin
- Amazon – $2.9B or 2% margin