Microsoft’s shift to the cloud is a lesson in corporate evolution

We tend to take the cloud for granted today as a way of delivering and building software, but it wasn’t always the case. Less than a decade ago, in fact, companies like Microsoft sold most of their software in boxes or in large on-prem installations inside customer data centers.

Around 2012, as the company began thinking about what the future of computing might look like, it became clear that software would eventually move to the cloud. Microsoft would have to go through a long journey of changing internal processes and convincing customers the cloud was a more efficient way to deliver software.

It’s important to remember that in those days, whether we were talking Office or SharePoint, the company’s content management system, the software was developed over long multiyear cycles and delivered as one massive change. Not every customer upgraded because they had built systems to work with a previous version, and there was a large cost associated with upgrading.

That meant that existing customers often used older versions and didn’t take advantage of the latest innovations that Microsoft spent significant resources creating.

Today, Microsoft’s cloud software business is booming — the productivity and business category, where Office 365 and other cloud productivity software live, alone raked in $15 billion in business in the company’s most recent earnings report (this category also includes LinkedIn revenue). That’s up 22% from a year earlier. That number included boxed software, by the way, which is still sold in parts of the world. In case you’re wondering, boxed sales declined 13% for the same period, as companies and individuals increasingly chose cloud.

Last month, I interviewed Jared Spataro, corporate vice president for Microsoft 365, at TechCrunch Sessions: SaaS. He was at Microsoft during the company’s transition to the cloud, and we talked about what was involved in making such a huge shift and how the company convinced often reluctant customers that the cloud was the way to go.

Leading through change

Nobody likes a massive change, and it seemed like a big unknown for most customers looking at the cloud in 2012. Sure, there were successful SaaS companies at that point, Salesforce being a prime example, but it was a much smaller company than it is today.

There was still a prevailing feeling that the cloud represented a gamble. “When we first started thinking about making a transition from our previous model to the cloud, we of course, had those conversations with customers, and I’ll never forget customers saying, “No way, don’t go chase that. We’re not interested. Don’t spend your money there, spend your money in places where we want you to improve the product,” Spataro told me.