just earned some serious bragging rights.
The company surpassed Google owner Alphabet to become the third-most valuable company in the world, with a market cap of more than $760 billion — about $15 billion more than Alphabet.
It’s not the first time the two companies have traded places on the most valuable companies list (the first two spots belong to Apple and Amazon, respectively), but, as CNBC notes, it’s the first time Microsoft’s taken the lead over Google in a number of years.
What’s more, the latest milestone is a noteworthy moment for Microsoft, which is finally starting to see some of its long-term bets pay off in significant ways.
1) The cloud
It may not be the sexiest business, but it’s difficult to overstate just how important Microsoft’s shift toward a “cloud-first” world has been. We’ve seen this bear out in a number of ways, but perhaps the most important to Microsoft’s bottom line is its Azure business.
Microsoft’s been leaning in to Azure, its Amazon Web Services (AWS) competitor for years, but the efforts have paid off substantially under CEO Satya Nadella’s leadership, with the company consistently growing both its customer base and revenue.
“They are a very strong number two to AWS who arguably had a 5-year head start on them. I think the market really likes that,” says Patrick Moorhead, president and principal analyst at Moor Insights.
And, if what we saw at Microsoft’s Build developer conference is any indication, we should expect Azure will only become more crucial to the company, thanks to new projects like Project Kinect for Azure.
2) Subscriptions are king
One of the other most important shifts we’ve seen from Microsoft over the years is its shift to subscription-based models for its software and services. Once upon a time, if you wanted to get the Microsoft Office suite, for example, you’d have to pony up a sizable chunk of cash up front to get it.
Now, thanks to Office 365, consumers and businesses alike can pay a monthly fee instead. This has been hugely successful for the company. Consumer subscribers for Office 365 hit 30.6 million last quarter, according to the company’s last earnings report, while its business customers hit a record 135 million monthly actives.
This subscription strategy isn’t just about Office, by the way. It’s paying off in other areas as well, like Xbox, where gaming revenue is up 18 percent, thanks in large part to growing demand for Xbox software and services.
3) Future bets
It’s also important to look at where Microsoft’s placing its future bets, notably in artificial intelligence and Internet of Things. The company’s been making big investments in these areas, which are likely to be see massive growth in the future, says Moorhead.
As Google and Facebook look to outdo each other when it comes to consumer-level AI, Microsoft’s strategy mostly revolves around using machine learning to enhance its offerings for businesses.
“What Wall Street likes is that [AI is] a big company’s game,” Moorhead says. “You have to have a lot of scale to do machine learning in the cloud.”