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Microsoft by the numbers: Redmond gets its mojo back

Microsoft Corp. Xbox Design Lab controllers are displayed during the E3 Electronic Entertainment Expo in Los Angeles, California.
Patrick T. Fallon | Bloomberg | Getty Images
Microsoft Corp. Xbox Design Lab controllers are displayed during the E3 Electronic Entertainment Expo in Los Angeles, California.

As Microsoft released an updated Xbox gaming console Tuesday, the company's stock was up more than 20 percent from a year ago.

That's significantly better than the technology industry as a whole, including the other dividend-paying tech stocks like IBM, Cisco and HP, that have seen a boost this year as investors seek steady payments. That may be because analysts and investors finally see potential for tech veteran Microsoft to seize market share from its younger competitors, even if some of its products are still struggling.

A cornerstone of the company's budding turnaround is Windows 10, which was released last year and which fixed many of the problems that made Windows 8 and 8.1 unpopular. It may be the fastest-adopted operating systems in Microsoft history. According to data from Net Applications, Windows 10 has gained more market share in the first 12 months than the successful Windows 7 did after its 2009 release.

The rapid growth in Windows 10 adoption was due in part to the oldest trick in the book: giving it away for free (the promotion just ended). For the first year, anyone running Windows 7 or 8 could upgrade for no cost, attracting hundreds of millions of devices to the new platform. Among organizations that switched to the new version, 66 percent cited the free upgrade as a major reason, in a Spiceworks survey released in July.

The strategy didn't do much to help PC sales, but it did breathe new life into Bing, the company's much-ridiculed search engine. Bing comes as a central component in the latest OS, and some users report difficulty switching to competing search options.

By the end of 2015, Bing had become profitable for the first time, with $1 billion in revenue. In the first fiscal quarter of 2016, search revenue was up by nearly 30 percent as the company experienced higher volume and higher revenue per search.

Almost 20 percent of search revenue in September was driven by the new OS, according to the company. Bing now has around 10 to 20 percent of the global search engine market, an uptick which coincides with the success of Windows 10. That's not bad for a product that had been compared to "throwing money down a rat hole," but it remains to be seen whether it will remain profitable.

Analysts also have high hopes for Microsoft's Azure cloud services. Azure has more than 10 percent of the worldwide market for the cloud and has doubled its revenue from those services in the last year, according to a report by Synergy Research Group released Monday.

The cloud service has also gained high-profile clients recently, including Boeing's aviation analytics applications and NBC's streaming of the Summer Olympics in Rio. While all cloud services are behind Amazon's market share of more than 30 percent, Azure has been slowly gaining ground in the marketplace.

Cloud services were a major focus of the new strategy put in place by CEO Satya Nadella in 2014. Nadella declared that the company would be "mobile-first" and "cloud-first," but the company seems to be seeing more success with the second goal than the first.

"While Microsoft is seeing strong growth in its cloud and commercial service business, we remain concerned about the consumer-facing businesses, and particularly by the large hole in the company's product line left by the slow demise of the Windows phone," wrote Argus Research analyst Joseph Bonner after the July earnings call.

The question is whether the most promising Microsoft products can make up for ongoing failures like the company's mobile phones. Other efforts, like its acquisition of LinkedIn and "Project Scorpio" — a planned high-resolution virtual reality console — are still big question marks.

Investors seem to be banking on the upsides of Microsoft's products, driving the stock close to the company's all-time high in late 1999.

Disclosure: CNBC parent NBCUniversal owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder to all Summer and Winter Games through the year 2032.

Correction: The results of the Spiceworks survey were released in July. An earlier version misstated the timing.