Microsoft’s LSE Cloud Deal Raises Plenty of Questions

Note to Microsoft CEO Satya Nadella, cc: Google CEO Sundar Pichai. Your big cloud customer wins are impressive—when you’re not also investing in the customer! Take today’s deal, where Microsoft bought a 4% stake in the London Stock Exchange as part of a deal in which the LSE is committing to spend at least $2.8 billion on Microsoft cloud services over the next 10 years. At the current price of LSE shares, that 4% will cost Microsoft around $2 billion. That doesn’t sound like a particularly impressive trade, particularly when you consider the LSE is already a Microsoft cloud customer.

Now, in fairness to Microsoft, the software giant says it hopes to wring as much as $5 billion out of the LSE over the next decade, including the minimum spending commitment. Still, who knows whether, or when, those extra dollars will flow. That’s just one of several questions Microsoft investors should be asking about this deal. Another is how much of the LSE’s commitments are incremental to what it is already spending with Microsoft. On a call with analysts today, LSE executives dodged that question, although they did acknowledge already spending a “significant” amount on the cloud. Tellingly, though, Reuters quoted an LSE executive saying the company would continue to work with other cloud providers.