Commercial cloud services are helping to drive fast business growth for Microsoft, the company reported yesterday, noting that its Q1 2018 performance has already surpassed its previous financial goals. Microsoft attributed the strong cloud demand to the ongoing trend of digital transformation in the business world.

During the first quarter, Microsoft said it had achieved an annualized revenue run rate for commercial cloud services of more than $20 billion, enabling it to pass a financial milestone it had set for itself two years ago. The ARR (annual recurring revenue) is calculated by taking revenues from the last month of the prior fiscal year and multiplying that by 12.

Microsoft has recently expanded its Azure cloud service with a number of new offerings, including an Azure Stack service for cloud-based hybrid IT, and Azure Confidential Computing for security. The company said the growing Azure portfolio has helped attract new enterprise customers looking to improve efficiency and advance their digital business goals.

New IoT, AI Capabilities

According to Judson Althoff, executive vice president for worldwide commercial business, 96 percent of Fortune 500 companies are now using at least one of Microsoft's cloud services and 90 percent use at least two.

"Across major industries -- from finance and energy sector to retail and professional sports -- organizations are betting on Microsoft to help them transform their customers' experiences, employee productivity, operations and products," Althoff wrote yesterday on Microsoft's blog. Among the companies using Azure services for digital business are Bank of America, Symantec, BP, Steelcase, and Huawei.

In addition to Azure Stack and Azure Confidential Computing, Microsoft has also been expanding its cloud offerings through new capabilities for the Internet of Things, machine learning, and artificial intelligence, Althoff said.

"We've been focused on addressing the real-world needs of customers with our differentiated approach to the cloud, architecting for hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance," said CEO Satya Nadella (pictured above) during yesterday's earnings call. In addition to supporting consistency across cloud services, Microsoft's cloud services are also built on a growing infrastructure of 42 regional data centers -- more than any other cloud provider, he said.

Goal: $500B Workplace Market

Beyond Azure, Microsoft's cloud-based Windows 10 and Office 365 services have also seen solid growth in the past quarter. Revenues for Office commercial products and cloud services increased by 10 percent, while Office 365 commercial earnings alone rose by 42 percent. And revenues for Windows products for personal computing increased by 7 percent.

Nadella said the number of monthly active devices using a commercial version of Windows 10 grew by 90 percent, compared to the same quarter in 2017. He added that the company plans to continue expanding its offerings for business users, pointing to the Microsoft 365 suite of cloud-based tools launched this summer.

"[T]op of mind for every CEO is empowering their own employees for the modern workplace," Nadella said. "Microsoft 365 is our core offering to address this $500 billion-plus market."

By combining tools from Office 365, Windows 10, and Enterprise Mobility + Security, Microsoft 365 "represents a profound shift in the way we design, build and deliver our productivity solutions, moving to a people-centered approach, spanning all their devices to unlock creativity and inspire teamwork while simplifying security and management," he said.

Microsoft is also working to make LinkedIn, the professional networking and social media site it acquired in late 2016, a growing contributor to its enterprise market ambitions. Users will see more product integration between LinkedIn and other Microsoft products going forward into 2018, Nadella said.