Editor’s note: Microsoft’s latest earnings report shows that its strategy of focusing on lifetime customer value in the transition to the cloud stabilizes its performance, concludes Technology Business Research analyst Kelsey Mason.

HAMPTON, N.H. – In the words of CEO Satya Nadella, Microsoft has been able to “transform and perform” simultaneously, while competitors struggle to stay afloat in uncertain waters as customers move from license-based models to subscription.

This is evidenced by Microsoft’s increasing focus on annuity relationships, which made up 82% of commercial revenue. Microsoft’s user-focused portfolio gives it a leg-up in this transformation against its data center-focused peers and TBR believes the company has handled business model shifts and changing consumption trends successfully thus far. With emphasis on lifetime monetization over one-time sales for core products such as Windows and Office, Microsoft positions itself for continued success. The company has succeeded shifting office to the cloud and intends to grow lifetime customer value by integrating other products to office such as Dynamics, Power BI, Enterprise Mobility Suite, among others. Microsoft will also participate in partner ecosystem development for richer and deeper extensions to maintain the suites de facto status.

Ecosystem expansion and retention hinges on Microsoft improving developer experience

Microsoft has traditionally been perceived as difficult to work with in the minds of developers due to a fragmented development process. Over the last year, the company has taken steps to make its “write once, deploy anywhere” strategy a reality as it aims to attract developers to its cloud and mobile ecosystems.

Increasing support for iOS and Android development through the acquisition of HockeyApp and consolidation of Azure App Services demonstrates Microsoft’s commitment to creating a platform-agnostic developer environment. Azure App Service bundles existing development services such as Azure Websites, Azure Mobile Services and Azure BizTalk Services into one solution for developers to create and host platform- and device-agnostic applications. TBR believes integrating these services will make Microsoft’s development services more appealing to developers as it provides a seamless experience for building web, logic, mobile and API applications.

Adding highly-demanded technology such as containerization will also help Microsoft retain and grow its developer base. Announced in April, Windows Server 2016 includes Nano Server and containerization support. In addition to launching Hyper-V containers, Windows Server 2016 also supports Windows and Linux containers, with all three managed using Docker. Nano Server addresses growing container utilization by enabling customers to run a stripped-down version of Windows Server inside the container. TBR believes container support adds technology critical to Microsoft’s developer ecosystem retention and expansion.

Microsoft improves user experience of Office to defend the suite’s status in the market

The de facto productivity suite standard for decades, Office has faced serious challenges from Google Apps for Work, particularly in the price conscious consumer and education spaces. Launching features such as Delve and Sway and acquisitions such as LiveLoop help Microsoft defend Office’s market position by improving its appeal and user experience.

Adding Delve and Sway improves integration across Microsoft’s full suite of productivity tools including Office, OneDrive, Yammer and SharePoint. Distributing Office 365 as freeware on competitive platforms requires Microsoft to drive cross sales, which the Delve and Sway integrations facilitate. In addition, LiveLoop enables real-time collaboration in Office documents, similar to the functionality that Google Apps for Work offers. Though late to market, TBR believes this functionality enhances Microsoft’s value proposition for customers, especially in the education space.

(C) TBR