Microsoft’s cloud-hosted desktop productivity suite, Office 365, is selling at a run-rate of $1 billion a year, the company’s chief financial officer said yesterday.

“One in four of our enterprise customers now has Office 365,” Peter Klein said on a conference call with investment analysts. “The business is on a $1 billion annual revenue run rate.”

This puts it roughly on a par with Google’s revenue from its Googe Apps services, according to a Wall Street Journal story from December last year. 

Klein made the remarks as he discussed Micrsoft’s latest financial report. In its most recent financial quarter, the software giant grew revenues 18% year-on-year to $20.5 billion.

CEO Steve Ballmer said the growth reflect the success of Microsoft’s cloud strategy.

“The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox LIVE, and Skype,” he said. “While there is still work to do, we are optimistic that the bets we’ve made on Windows devices position us well for the long-term.”

The company’s Business Division, which includes the Office suite, grew sales 8% to $6.3 billion during the period. Revenue from products and services paid for through multiyear licences, including Office 365, grew 16% during the quarter and account for 60% of the unit’s revenues, Microsoft said.

But while Microsoft’s cloud strategy appears to be paying off, its operating system business, which made the company’s name, has underwhelmed.

The Windows Division grew sales 23% to $5.7 billion during the more recent quarter but according to IDC, the release of Windows 8 has not only failed to stem the decline of the PC market, it has accelerated it.

The Server and Tools business reported $5.04 billion of revenue, an 11% increase year-on-year, driven by double-digit percentage revenue growth in SQL Server and System Center, it said.

Microsoft’s Entertainment and Services division grew 56% year-on-year to reach $2.5 billion, boosted by an 18% rise in subscribers to its Xbox live gaming service.