Microsoft: changing direction
How a large, established company moved its business toward the cloud, and what the change looked like in its numbers.
Last updated: September 2026
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The situation
In 2014, Microsoft made most of its money selling software licenses, such as Windows and Office, that customers paid for once. Personal computer sales had been shrinking, Microsoft had little presence in smartphones, and newer companies were growing fast in cloud computing, where businesses rent computing power and software over the internet.
That year a new CEO, Satya Nadella, set a new direction: focus on cloud services such as Azure, its cloud platform, and sell Office as a subscription (Office 365) instead of a one-time purchase. Note that Microsoft's ends in June.
The numbers
Microsoft (MSFT), fiscal years 2014 to 2020
| Metric | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|---|---|---|---|---|---|---|
| Revenue | $86.8B | $93.6B | $91.2B | $96.6B | $110.4B | $125.8B | $143.0B |
| Revenue Growth | +11.5% | +7.8% | −2.6% | +5.9% | +14.3% | +14.0% | +13.6% |
| Gross Margin | 68.8% | 64.7% | 64.0% | 64.5% | 65.2% | 65.9% | 67.8% |
| Net Income | $22.1B | $12.2B | $20.5B | $25.5B | $16.6B | $39.2B | $44.3B |
| Free Cash Flow | $27.0B | $23.7B | $25.0B | $31.4B | $32.3B | $38.3B | $45.2B |
What the numbers showed
The change didn't show up as a clean line. Revenue dipped slightly in fiscal 2016, as phone sales shrank and more software income was recorded gradually over time instead of all at once. fell for a few years, partly because the phone hardware it had bought from Nokia kept little of each sale, and partly because running data centers costs more than selling copies of software. had two sharp dips: in fiscal 2015, when Microsoft wrote down most of the value of the phone business it had bought from Nokia, and in fiscal 2018, because of a one-time tax charge after the U.S. tax reform. Meanwhile, free cash flow stayed strong.
What happened next
From fiscal 2018 on, revenue grew faster again and gross margin recovered as the cloud business got bigger. In 2019, Microsoft's market value passed $1 trillion for the first time.
What was uncertain at the time
- Whether Azure could compete with Amazon Web Services, which already led cloud computing.
- Whether customers would accept paying for Office every year instead of once.
- Whether the lower margins during the change would recover.
What this case shows
When a company changes how it makes money, some numbers can look weaker for a while even if the plan is working, and a single year's profit can be moved by one-time charges. Looking at several years, and at more than one number, as in combining metrics, gives a fuller picture. At the time, it wasn't known whether the new direction would succeed.