The heavy layoffs expected as part of a Microsoft Corp. (MSFT - Get Report) reorganization could make the software company more fleet as it chases cloud leader Amazon (AMZN - Get Report) and tries to extend its lead over Alphabet's (GOOGL - Get Report) Google and others.
Details of just what CEO Satya Nadella has in store are not yet available, though reports suggest he will refocus Microsoft's sales staff on its cloud efforts. Shares of Microsoft were up 1.3% to $69.09 by Wednesday's close.
Gartner analyst Ed Anderson said that having a modern sales force is critical for Microsoft to succeed in the cloud era.
"Most of Microsoft's sales teams have been trained and organized to sell traditional software products," Anderson said. "Microsoft has done a lot of retraining, and built new incentive and compensation to drive cloud sales, but it's hard to move a huge organization that was really built on the model of traditional software sales."
Microsoft has used its leverage in products such as its Office software suite to lure corporate cloud customers. The shift in the sales force would fit with Microsoft global commercial business head's Judson Althoff cloud-first strategy, Anderson suggested.
"With regards to [Amazon's] AWS and Google, Microsoft is already competing pretty well there. If this reorg really gets the sales teams more focused on the cloud businesses, then it will only make Microsoft even more competitive, which I'm sure is Microsoft's desired outcome," he said.
Amazon.com Inc.'s Amazon Web Services was the clear leader at the end of the first quarter, with 33% of the market for public cloud, private cloud and hybrid services that the combine the two, according to Synergy Research Group. Microsoft was second with 10%, IBM Corp. (IBM - Get Report) had 8% and Alphabet Inc.'s Google Cloud Platform had 5%.
AWS's lead is even greater when just considering the public cloud. There, Amazon Web Services has a 44% stake, Synergy reports, followed by Microsoft (11%), Google (6%), Alibaba Group Holding Ltd.'s (BABA - Get Report) AliCloud (5%) and IBM (4%).
"Microsoft has been steadily gaining cloud services market share -- though the gap between it and market leader AWS remains a gulf," Synergy's John Dinsdale said.
While Microsoft now plans to reorient its sales efforts, Morningstar analyst Rodney Nelson notes that it has already identified the cloud as its major business driver. Like other enterprise software giants, it has been moving from sales of legacy, on-premises software licenses to subscription-based models.
"We've seen other firms like Oracle (ORCL - Get Report) make strategic decisions like removing incentives for selling on-prem software to further their cloud efforts," Morningstar Inc. analyst Rodney Nelson said in an email. "I think in Microsoft's case they're focusing on selling those services more efficiently (because cloud sales have been very healthy) to help ramp margins on those businesses a little faster."
Althoff and Nadella could take a page from the book of Salesforce.com Inc. (CRM - Get Report) boss Marc Benioff by "verticalizing" the salesforce, or aligning sales with specific industries, Nelson suggested. Salesforce has rolled out specific products for financial services and healthcare, for instance.
Indeed, according to a copy of a memo sent to Microsoft employees this week obtained by Geekwire, Microsoft's newly-formed enterprise teams will focus on six core industries: manufacturing, financial services, retail, health, education and government.
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