Microsoft CEO Satya Nadella Business Insider Microsoft on Thursday said that its cloud computing revenue is on a "run rate" of more $10 billion, which puts it on track to hit its promised $20 billion run-rate by 2018.

Run rate is a slippery number that means that if customers keep spending the way they are, revenue will hit that number in a 12-month period.

It's slippery because some cloud contracts don't exactly work like that. They are fluid, with companies only paying for the actual compute resources they use.

In any case, Microsoft doesn't report its actual cloud revenues. Its cloud services are bundled and buried into each of its business units and reported mixed-in with traditional software sales.

Still many analysts see Microsoft as No. 2 in terms of cloud revenue behind Amazon Web Services. Synergy Research, for instance, puts Microsoft at 10% market share.

And while it's not a completely zero sum game (many enterprises will use multiple cloud providers), there's an increasing number of enterprises that are going "all in" on the cloud, shutting down their own data centers and choosing Amazon. Once on Amazon, these users are very loyal to it, a recent survey found.

So on Thursday, during the quarterly conference call, Microsoft CEO Satya Nadella was asked how he plans to compete with Amazon and win.

His answer: old-fashioned software is the key.

Amazon doesn't sell things like database software, email software and Windows Server software that a company can install in their own data centers. It only offers the cloud, where companies rent that stuff hosted on Amazon's servers, accessing it over the internet.

But many businesses are still buying old fashioned software, using their data centers for some stuff, the cloud for other stuff, a concept known as "hybrid cloud computing."

Nadella says:

Where our differentiation lies: The first one is hybrid. Every server product of ours has cloud enrollment rights whether that be Windows Server or SQL Server," he said, meaning that if you buy the software, you don't need to pay for it again to use it on Microsoft's cloud. That saves a company money.

And he said, the reverse is true, too, that Microsoft's cloud Azure works particularly well with all of the company's own server products. This is "unique to Microsoft.

It's a logical approach.

For instance, Sony Pictures, a Microsoft customer that moved from Office to Office 365, is working with both Amazon Web Services and Azure, according to a research note by Nomura analyst Frederick Grieb earlier this month. And Sony plans to expand its cloud usage with both in the future.