Origins
Bill Gates and Paul Allen founded Microsoft in 1975 to write software for early personal computers, starting with a version of the BASIC programming language. The company later moved to the Seattle area and settled in Redmond. Its operating system for IBM-compatible PCs, MS-DOS, and later Windows made it the standard software layer for much of the personal computer industry.
How the business makes money
Microsoft uses almost every model described in our profile framework:
- Subscriptions. Microsoft 365 for consumers and businesses, plus other cloud software sold per user.
- Usage-based cloud. Azure customers pay for computing, storage and services they consume.
- Licences. Windows licences sold through PC makers, and server software sold to organisations.
- Gaming. Xbox consoles, game sales and subscriptions.
- Advertising. Search advertising through Bing, and LinkedIn's marketing and recruiting products.
Reporting segments
For several years Microsoft has reported three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Companies can and do reorganise segments, so check the latest annual report (Form 10-K) for the current grouping and for how revenue splits between them.
What protects it
- Switching costs. Organisations build their workflows, identity systems and files around Microsoft tools.
- Bundling. Many products are sold together, which makes each one cheaper to adopt.
- Developer reach. Visual Studio, GitHub and Azure give it a large presence among programmers.
- Cloud scale. Running a global network of data centres requires years of investment.
What to watch in its reports
Look at how cloud revenue grows compared with the rest of the business, how much the company spends on data centres (capital expenditure), and how commercial subscriptions are renewing. Those three lines tell you more about the direction of the company than any single product launch.
This page explains how a company is organised. It is not investment advice and says nothing about whether a share is worth buying or selling.