Microsoft (NASDAQ:MSFT) recently inked a five-year cloud deal with Coca-Cola (NYSE:KO), in which the beverage maker will standardize its business operations with Microsoft's Azure, Dynamics 365, and Microsoft 365 services.
The partnership marks another victory for Microsoft's commercial cloud business, which secured big clients like Costco, Walmart, and AT&T in recent years. It will also widen Microsoft's moat against Amazon (NASDAQ:AMZN), Salesforce (NYSE:CRM), and Slack (NYSE:WORK) in their respective cloud markets.
How does Microsoft compete against these three companies?
Microsoft's commercial cloud revenue rose 39% annually to $13.3 billion last quarter and accounted for 38% of its top line. Microsoft reports the year-over-year growth rates of each cloud segment, but it doesn't disclose their exact revenues.
Its core growth engine is the cloud infrastructure platform Azure, which grew its revenue 59% annually last quarter. Azure is the second-largest cloud platform in the world after Amazon Web Services (AWS).
Azure's global market share rose from 14.9% to 17.6% between the fourth quarters of 2018 and 2019, according to Canalys, as AWS's share dipped from 33.4% to 32.4%. Using Azure, which grants clients more cloud-based storage and computing power, is an appealing choice for companies that are already tethered to Microsoft's software ecosystem and retailers that have been previously burned by Amazon.
Microsoft's Dynamics CRM (customer relationship management) platform competes against Salesforce's market-leading CRM platform. Salesforce's share of the CRM market rose from 18.3% in 2017 to 19.5% in 2018, according to Gartner's latest numbers. Microsoft, which ranks a distant fifth in the market, held a 2.7% share in both years.
Yet Dynamics 365, the cloud-based version of the CRM platform, generated 47% annual revenue growth last quarter, making it Microsoft's second-fastest-growing cloud business. By comparison, Salesforce's revenue rose 35% annually last quarter.
In the remote collaboration market, Microsoft Teams -- which has over 75 million daily active users -- competes against Slack. Slack declared it had 12 million daily active users last October, and hit 12.5 million concurrent users in late March as the COVID-19 crisis forced more people to work from home.
Research firm SimilarWeb recently noted downloads of Teams' Android app and visits to its website both outpaced Slack's numbers by significant margins in March. If that gap widens, Slack -- which remains unprofitable -- could struggle to counter Teams, which is tightly bundled into the Microsoft 365 suite of productivity services.
How will the Coca-Cola deal strengthen all three businesses?
Barry Simpson, the senior VP and chief information and integrated services officer at Coca-Cola, claims the "partnership with Microsoft allows us to really step change our employee experience through replacing previously disparate and fragmented systems."
Coca-Cola will deploy Dynamics 365, the Power Platform (which includes analytics tools, apps, and chatbots), and Teams to all of its employees. It will also tether its services to Azure and Microsoft 365.
Coca-Cola will use Dynamics 365 to monitor and analyze call centers to gain clearer business insights, and it plans to unite employees on single hubs for chat, calls, meetings, and documents via Microsoft 365 and Teams. Coca-Cola noted those services already allowed many of its employees to work remotely through the pandemic.
In short, Coca-Cola is replacing its legacy software with Microsoft's cloud-based solutions to streamline its business and cut costs. Coca-Cola employs 86,200 people worldwide across 200 countries and regions, so the deal could significantly boost Microsoft's commercial cloud revenue throughout the rest of the year.
What does this mean for Microsoft's future?
Microsoft's deal with Coca-Cola indicates that the tech giant is fulfilling CEO Satya Nadella's vision of a "mobile first, cloud first" company. Nadella coined the phrase when he took the helm six years ago, and Microsoft's investments in its cloud ecosystem initially throttled its earnings growth. However, Microsoft's commercial cloud business is now firing on all cylinders and should continue challenging Amazon, Salesforce, Slack, and others with its expanding ecosystem.
Editor's note: This article has been corrected. Microsoft Teams has more than 75 million daily active users.