Revenue increased $8.7 billion or 20% driven by growth across each of our segments. Intelligent Cloud revenue increased driven by Azure and other cloud services. Productivity and Business Processes revenue increased driven by Office 365 Commercial and LinkedIn. More Personal Computing revenue increased driven by Windows and Search and news advertising.
Cost of revenue increased $2.8 billion or 19% driven by growth in Microsoft Cloud.
Gross margin increased $5.9 billion or 20% driven by growth across each of our segments.
Gross margin percentage was relatively unchanged. Excluding the impact of the change in accounting estimate for the useful lives of our server and network equipment, gross margin percentage increased 2 points driven by improvements in More Personal Computing and Productivity and Business Processes.
Microsoft Cloud gross margin percentage decreased slightly to 70%. Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage increased 3 points driven by improvement across our cloud services, offset in part by sales mix shift to Azure and other cloud services.
Operating expenses increased $1.5 billion or 14% driven by investments in cloud engineering, Gaming, LinkedIn, and commercial sales.
Key changes in operating expenses were:
Research and development expenses increased $859 million or 18% driven by investments in cloud engineering and Gaming.
Sales and marketing expenses increased $432 million or 9% driven by investments in commercial sales and LinkedIn.
General and administrative expenses increased $245 million or 22% primarily driven by an increase in headcount.
Operating income increased $4.4 billion or 24% driven by growth across each of our segments.