Microsoft is having a good year. Not only has the company claimed the mantle as the most valuable company on earth, it also just posted its most profitable quarter ever. It has also avoided many of the privacy and antitrust concerns that have dogged other major tech-players (though it's true that a town in Germany just banned Office 365).
One of the biggest things we learned from the company's most recent earnings announcement is that Microsoft's Azure cloud-based computing service is firmly established as the number two player in the market. And even though its growth has slowed, being number two isn't such a bad thing. Especially when you're Microsoft.
Of course, Microsoft isn't a company you normally think about as coming in second in many things. Look at its flagship software, Windows, which has long held a commanding lead in desktop operating systems, and currently runs on just over 78 percent of computers worldwide.
All of that has contributed to the fact that, once again, Microsoft is the world's most valuable company by market share.
In fact, since the current CEO Satya Nadella took over almost five and a half years ago, the company's stock price has increased 327 percent. That's all very impressive.
But, let's go back to Azure for a minute.
Cloud computing is growing.
According to a forecast from Gartner, Inc., cloud computing is expected to grow 17.5 percent to $214.3 billion next year. The current leader is Amazon Web Service (AWS), with around 32 percent of the market, but Microsoft's Azure service has been gaining steam and now owns about 16 percent globally, according to the most recent figures available. (Google Cloud represents just over nine percent.)
That means that Microsoft is solidly established as the number two cloud computing platform, and it's a big part of the reason the company is back at number one. In fact, Azure is a part of what is now the largest business unit at Microsoft, larger than either Windows or Office.
Be the best alternative.
I remember as a kid, there was a playground taunt that being number two just meant you were the first loser. And as an entrepreneur, that's still a common mentality, but pay attention to Microsoft because they just showed you that sometimes the best way to win, or be number one, is to be number two.
It's especially true when you're in an industry dominated by one player, AWS in this case.
Here's what I mean:
Being able to position yourself as the best alternative to a major player is a powerful leverage point. In fact, it's one Microsoft has experienced from the other end for years, considering all of the software markets it has dominated. Apple's macOS has long trailed behind Windows on desktop computers, and that company used its position as the underdog as a rallying cry for years.
Now, in terms of cloud computing, Microsoft has clearly established itself as the dominant alternative to the biggest player, Amazon. To be fair, it certainly helps that Microsoft has both the reputation and relationships with many of the largest customers in this space as a result of its history of providing business and enterprise software.
And it's paid off, just last week the company also announced a $2 billion deal to provide a combination fo software and services to AT&T.
It's true that there is a range of factors that have led to Microsoft's performance, and boiling it down to only one thing is an oversimplification, but the reality is that cloud-computing has driven a large part of the company's growth.
Here's the lesson.
It's almost always more motivating to be the upstart challenger than the guy on top. When you take advantage of that position and leverage it right, it drives performance, rallies your team, and fuels growth. And that growth can help turbo-charge your entire business.
Sometimes it requires reevaluating what it means to be number one. Are you mostly interested in dominating a category, or a market, or a specific product? Or are you interested in building something that has real long-term value and is built to last?
Sometimes being number two in a category can help you meet whatever happens to be your larger goal.
Microsoft underwent a dramatic change from the days when it primarily sold boxes of Windows and Office software to consumers and businesses. It has transitioned much of its business to take advantage of the demand for cloud-based computing, and in doing so, just posted its best quarter ever, and has become the world's most valuable company.
That's not bad for number two.