Shares of Microsoft Corporation (NASDAQ:MSFT) jumped over 1% earlier in the week — a notable move for such a monstrous company, especially given the selloff in the broader market. The gain was prompted by the company’s deal with long-time rival Oracle Corporation (NASDAQ:ORCL).
Going forward, Microsoft Corporation (NASDAQ:MSFT) will be a major cloud services supplier for Oracle’s enterprise software. Ultimately, that push into the cloud could be enough to offset the decline of the company’s Windows business.
The death of the PC
Alongside news of Microsoft’s partnership with Oracle Corporation (NASDAQ:ORCL), research firm Gartner released another report on the ongoing decline of the traditional PC. Gartner now expects sales of traditional PCs (laptops, desktops) to decline about 10% in 2013, with consumers increasingly opting for mobile devices.
Microsoft Corporation (NASDAQ:MSFT)’s efforts to get into the mobile market have largely fallen flat. Windows 8 — intended to serve as a hybrid operating system for both tablets and PCs — has been heavily criticized, while Windows RT tablets have sold poorly.
Given the failure of Microsoft’s mobile strategy, Gartner now expects Google’s Android to largely replace Windows as the world’s dominant operating system by 2017.
This seems like a particularly bad development for Microsoft Corporation (NASDAQ:MSFT) shareholders. In the last quarter, the company’s Windows division accounted for nearly a quarter of Microsoft’s revenue and profit.
Microsoft’s Azure
But, despite the fact that Microsoft Corporation (NASDAQ:MSFT) could be on the verge of losing a quarter of its business, not all investors are deterred. In April, hedge fund ValueAct bought up about $2 billion worth of Microsoft stock, with a 3-5 year time horizon.
As ValueAct explained, the basic PC operating system is becoming less relevant. Increasingly, cloud-based software is replacing local solutions, and Microsoft Corporation (NASDAQ:MSFT)’s Azure puts the company in a great position.
With Azure, Microsoft is one of the biggest players in the public cloud space. The company claims that half of the fortune 500 uses Azure to some extent.
Using Azure, software developers can host their applications on Microsoft Corporation (NASDAQ:MSFT)’s servers — making them available directly over the Internet.
That isn’t to say that Microsoft has hit a guaranteed home run with Azure. Unlike Windows — which still, for the most part, has a monopoly on the traditional PC — Azure faces many major competitors.
Most notably, Amazon.com, Inc. (NASDAQ:AMZN), with its Amazon Web Services (AWS) and Google Inc (NASDAQ:GOOG) with Compute Engine. Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) have been fighting a price war in recent months, while Google Inc (NASDAQ:GOOG) is making a strong push into the market.
Still, the deal with Oracle could give Microsoft’s Azure the edge. Forrester analyst James Staten concluded as much in a recent blog post, writing that the Oracle Corporation (NASDAQ:ORCL) deal gives Microsoft Corporation (NASDAQ:MSFT) a “clear competitive advantage” over its rivals like Amazon.com, Inc. (NASDAQ:AMZN).
Azure powering Oracle
Under the Oracle Corporation (NASDAQ:ORCL) deal, a number of the enterprise software maker’s products like Java and Oracle Database will be available for use in Azure. This brings Oracle into more direct competition with its upstart rival salesforce.com, inc. (NYSE:CRM).
salesforce.com, inc. (NYSE:CRM) has long been seen as a play on cloud computing. From its early days, the company has been devoted to selling cloud-based software solutions, mostly to Oracle Corporation (NASDAQ:ORCL)’s customers.
In recent years, the two companies have been very public about their feud. Oracle’s CEO Larry Ellison has openly criticized Salesforce’s business, while salesforce.com, inc. (NYSE:CRM)’s Marc Benioff has often returned the favor.
Ironically, this week marks a shift in the relationship between the two companies. Oracle Corporation (NASDAQ:ORCL) and Salesforce have unveiled a partnership that will allow their clients to share data between their competing products.
Ultimately, the deal could benefit both companies. In theory, the companies’ customers may be more likely to purchase additional services if they’re free to use them in greater ways.
Although both Oracle and salesforce.com, inc. (NYSE:CRM) would probably prefer that their customers stuck only to their products, that’s likely an unrealistic expectation. By working together, they can expand the size of the available market.
The future of Microsoft
Microsoft’s deal with Oracle Corporation (NASDAQ:ORCL) prompted a relatively large rally for the company’s stock, and rightfully so. Although the company’s Windows business looks to be in a state of inevitable decline, Microsoft Corporation (NASDAQ:MSFT)’s cloud-based initiatives could keep the company performing well into the future.
Unlike Windows, Azure faces some tough competitors like Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOG). But the recent deal with Oracle suggests that Microsoft is well positioned to win the cloud wars.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends salesforce.com, inc. (NYSE:CRM). The Motley Fool owns shares of Microsoft Corporation (NASDAQ:MSFT) and Oracle Corporation (NASDAQ:ORCL).
The article Azure Could Save Microsoft From the Death of Windows originally appeared on Fool.com.
Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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