Microsoft's (SAAS) Software-As-A-Service business

Stephen Elop, president of Microsoft's $18.9 billion Business Division, this week reiterated a bold prediction about the future of Microsoft's software-as-a-service business. Microsoft foresees half of Exchange, SharePoint, and Dynamics CRM revenue coming from online versions of those products within five years.

Elop was in New York meeting with analysts and customers, following Microsoft's announcement three weeks ago of general availability of Exchange Online and SharePoint Online. Microsoft's Office Communications Online service goes into testing early next year. Its Dynamics CRM Online has been available for several months.

If you put Elop's prediction of 50% of Exchange/SharePoint/CRM revenue coming from online services into the context of Microsoft's current business, Microsoft's cloud should become a billion-dollar operation in short order. SharePoint alone is a $1 billion business today, growing at 35% annually. At that growth rate, SharePoint in the cloud would be a $1 billion business within three years, if Elop's forecast holds true. Add in revenue from Exchange, Dynamics CRM, Office Communications, and other online services and Microsoft gets to the $1 billion cloud revenue mark within, say, 24 months.

Whether Microsoft can deliver on its ambitious cloud revenue projection remains to be seen, but it's not the first time I've heard the "50% in five years" forecast. Senior VP Chris Caposella made the same projection earlier this year, so company management is on the same page. Given the sheer size of Microsoft's application business -- the Business Division is expected to grow to $20 billion this fiscal year -- even modest success will translate into a rainfall of cloud revenue.

Thanks  John Foley for the text.