Microsoft 2005 Annual Report Download - page 13

BUSINESS DESCRIPTION (CONTINUED)
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anti-spam and anti-malware protection, network edge security, desktop access to enterprise applications, business
intelligence, rights management services, and storage. We expect to offer these technologies as new products and also
as higher-value versions of existing products. In our emerging businesses, we are also moving forward with a broad
portfolio of products, with a goal of providing best-in-class products in every major market where we compete, such as
gaming, software for mobile devices, small business applications and interactive television.
• Delivering software services. During the past several years, we have gained extensive experience in providing a variety
of online consumer services, many of them supported by advertising or subscriptions. These services include the world’s
largest email service, one of the world’s most popular online portals, MSN Search for the Web and the PC desktop, and
Xbox Live, the world’s largest online gaming service. We also have begun to develop services for business, such as
Outlook Live and Office Live Meeting, which enable workers to collaborate interactively without the cost and disruption of
business travel. We expect to pursue opportunities to offer other new services both to consumers and businesses. Our
announced plans to acquire FrontBridge Technologies, for example, will enable us to provide businesses with e-mail
filtering and security to help protect the health of their networks and the security of their data. We expect that services
will be an important component of our future growth.
DISTRIBUTION, SALES AND MARKETING
We distribute our products primarily through the following channels: OEM; distributors and resellers; and online services. Our six
major geographic sales and marketing organizations are the North American Region; the Latin American Region; the Europe,
Middle East, and Africa Region (EMEA); Japan; the Asia-Pacific Region; and Greater China.
OEM. Our operating systems are licensed primarily to OEMs under agreements that grant the OEMs the right to build
computing devices based on our operating systems, principally PCs. Under similar arrangements, we also market and license
certain server operating systems, desktop applications, hardware devices, and consumer software products to OEMs. We have
OEM agreements covering one or more of our products with virtually all of the major PC OEMs, including Acer, Dell, Fujitsu,
Fujitsu Siemens Computers, Gateway, Hewlett-Packard, Lenovo, NEC, Samsung, Sony, and Toshiba. A substantial amount of
OEM business is also conducted with system builders, which are low-volume customized PC vendors operating in local markets.
Distributors and Resellers. We license software to organizations under arrangements that allow the end-user customer to
acquire multiple licenses of products. Organizations license our products primarily through large account resellers (LARs), direct
market resellers, and value-added resellers. Many organizations that license products through enterprise agreements (EAs) now
transact directly with us, with sales support from our Enterprise Software Advisor channel partners. These Enterprise Software
Advisors typically are also authorized as LARs and operate as resellers for our other licensing programs. Although each type of
reselling partner reaches organizations of all sizes, LARs are primarily engaged with large organizations and value-added
resellers typically reach the breadth of small- and medium-sized organizations. Some of our distributors include Ingram Micro
and Tech Data, and some of our largest resellers include Software Spectrum, Software House International, Dell, CDW, and
Insight Enterprises. Our business solutions software offerings are licensed to enterprises through a global network of channel
partners providing vertical solutions and specialized services. We distribute our finished goods products primarily through
independent non- exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain our
products primarily through retail outlets, including Best Buy, Wal-Mart, and Target. We have a network of field sales
representatives and field support personnel that solicits orders from distributors and resellers and provides product training and
sales support.
Our arrangements for organizations to acquire multiple licenses of products are designed to provide them with a means of
doing so without having to acquire separate packaged product through retail channels. In delivering organizational licensing
arrangements to the market, we use different programs designed to provide flexibility for organizations of various sizes. While
these programs may differ in various parts of the world, generally they are as follows:
Open. Designed primarily for small-to-medium organizations (5 to over 250 licenses), this program allows customers to
acquire perpetual licenses and, at the customer’s election, rights to future versions of software products over a specified time
period (generally two years). The offering that conveys rights to future versions of certain software product over the contract
period is called Software Assurance. Software Assurance also provides support, tools, and training to help customers deploy and
use software efficiently. Under the Open program, customers can acquire licenses only, or licenses with Software Assurance.
They can also renew Software Assurance upon the expiration of existing volume licensing agreements.