How Does Microsoft Make Money?
Many people still picture Microsoft as "the Windows company." But Windows is now one of its smaller businesses. Microsoft makes most of its money by renting software and computing power to businesses, every month, through the cloud.
In fiscal year 2026 (ending June 30, 2026), Microsoft reported $331.8 billion in revenue. This post explains where it comes from, based on Microsoft's own annual report and earnings release.
🎯 Quick Answer (30-Second Read)
- FY2026 revenue: $331.8B, up 18%. Operating income: $155.2B. Net income: $133.7B.
- Microsoft Cloud revenue (Azure, Microsoft 365 commercial cloud, Dynamics and more): $214.4B, up 27%, about two-thirds of the total.
- Azure and other cloud services grew 41% for the year, driven heavily by AI workloads.
- Three segments: Productivity and Business Processes (Office, LinkedIn, Dynamics), Intelligent Cloud (Azure, servers), More Personal Computing (Windows, Xbox, search ads).
- Most revenue is recurring: subscriptions and usage-based cloud billing.
Microsoft in Numbers (FY2026)
The Three Segments
$331.8B FY2026"] MS --> PBP["Productivity &
Business Processes"] MS --> IC["Intelligent Cloud"] MS --> MPC["More Personal
Computing"] PBP --> P1["Microsoft 365 Commercial
(Office, Teams, Copilot)"] PBP --> P2["Microsoft 365 Consumer"] PBP --> P3["LinkedIn"] PBP --> P4["Dynamics 365"] IC --> I1["Azure + server products
(SQL Server, Windows Server)"] IC --> I2["Enterprise & partner services"] MPC --> M1["Windows & Devices"] MPC --> M2["Xbox"] MPC --> M3["Search advertising (Bing)"]
Latest quarter snapshot (Q4 FY2026, April–June 2026):
| Segment | Q4 revenue | Growth |
|---|---|---|
| Intelligent Cloud | $39.3B | +32% |
| Productivity and Business Processes | $37.8B | +14% |
| More Personal Computing | $12.9B | −4% |
| Total | $90.0B | +18% |
The direction is clear: cloud is growing fastest, consumer hardware and gaming are shrinking.
1. Azure: Renting the World's Computers
Azure rents computing power, storage, databases and AI services to businesses. Companies pay for what they use, so revenue grows as customers' workloads grow.
AI is the accelerant. Companies building AI products need huge amounts of GPU computing, and Azure hosts models from Microsoft's partners, including OpenAI. That's a big reason Azure and other cloud services grew 41% in FY2026.
2. Microsoft 365: The Subscription Engine
Office used to be a one-time purchase. Now businesses pay per user, per month for Microsoft 365 (Word, Excel, Outlook, Teams, SharePoint), and increasingly for Copilot, its AI assistant, as an add-on.
| Line | FY2026 growth |
|---|---|
| Microsoft 365 Commercial cloud | +17% |
| Microsoft 365 Consumer cloud | +28% |
| Dynamics 365 (business apps) | +18% |
| +11% |
Once a company runs on Outlook, Teams and Excel, switching is painful. That makes this one of the most dependable revenue streams in tech.
3. LinkedIn: Recruiting, Ads and Premium
LinkedIn makes money from recruiter tools sold to companies, advertising, and Premium subscriptions for job seekers and sales teams. It grew 11% in FY2026.
4. Windows, Xbox and Search
PC makers pay licence fees for each PC sold (Windows OEM). Windows OEM and Devices revenue decreased slightly in FY2026.
Game sales, Game Pass subscriptions and console hardware. Content and services declined 5%.
Ads on Bing and partner sites. Grew 12% excluding traffic acquisition costs.
Why Microsoft's Model Works
use Windows + Office"] --> M365["Upgrade to
Microsoft 365"] M365 --> ENTRA["Identity, security,
Teams"] ENTRA --> AZ["Easy path to
Azure"] AZ --> AI["AI services +
Copilot"] AI --> M365
Microsoft's advantage is distribution inside companies. It already has the IT department's trust and contracts, so each new product (Teams, Azure, Copilot) can be sold through the same relationships.
Frequently Asked Questions
What is Microsoft's biggest source of revenue?
Microsoft Cloud, which includes Azure, Microsoft 365 commercial cloud, Dynamics 365 and related services. It brought in $214.4 billion in fiscal 2026, about two-thirds of Microsoft's $331.8 billion total revenue, and grew 27%.
How much does Microsoft make from Windows?
Windows is now a relatively small part of Microsoft's business. It earns mainly from licence fees paid by PC makers, reported within the More Personal Computing segment, which had $12.9 billion of revenue in the fourth quarter of fiscal 2026, down 4%.
How does AI make money for Microsoft?
Mainly through Azure, where companies pay for computing to build and run AI models, including OpenAI's, and through Copilot subscriptions added to Microsoft 365. Azure and other cloud services grew 41% in fiscal 2026, helped significantly by AI demand.
Conclusion
Microsoft makes money by renting software and computing to businesses: Azure cloud, Microsoft 365 subscriptions, Dynamics and LinkedIn, with Windows, Xbox and search ads as smaller consumer businesses. In fiscal 2026, Microsoft Cloud brought in $214.4 billion of the $331.8 billion total, and AI demand is pushing Azure growth even faster.
Sources
- Microsoft FY2026 Form 10-K (SEC)
- Microsoft: FY26 Q4 earnings press release
- Microsoft Source: Cloud and AI strength fuels fourth quarter results (July 2026)
Last verified: 14 October 2026.
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