Microsoft 2006 Annual Report Download - page 10

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Numerous commercial software vendors offer competing commercial software applications for connectivity (both Internet
and intranet), security, hosting, and e-business servers. System Center competes with BMC, CA, and IBM in the Management of
IT infrastructures, while Forefront Security competes with McAfee, Symantec, and Trend Micro in protecting both client and
server applications. In addition, IBM has a large installed base of Lotus Notes and cc:Mail, both of which compete with our
collaboration and e-mail products. Non-commercial software products, including the widely-deployed Apache Web Server, also
compete with our solutions. Our products for software developers compete against offerings from Adobe, BEA Systems, Borland,
IBM, Oracle, Sun Microsystems, and other companies. We believe that our server products provide customers with advantages
in innovation, performance, total costs of ownership, and productivity, by delivering superior applications development tools and
development environment, compatibility with a broad base of hardware and software applications, security, and manageability.
Information Worker. Information Worker consists of the Microsoft Office system of programs, services, and software solutions
designed to increase personal, team, and organization productivity. The Office system offerings generate over 85% of
Information Worker revenue. Revenue growth depends on our ability to add value to the core Office product set and to continue
to expand our product offerings in other information worker areas such as enterprise content management, collaboration,
unified messaging, and business intelligence.
Approximately 40% of Information Worker revenue has come from multi-year license agreements with large enterprises.
Revenues from these licenses generally depend upon the number of information workers in a licensed enterprise. Revenue
from this category of agreements is therefore relatively independent of the number of PCs sold in a given year. Consequently,
general employment levels, particularly in North America and Europe, significantly affect Information Worker revenue.
Approximately 40% of Information Worker revenue comes from new licenses acquired through fully packaged product and
volume licensing programs to individual consumers and enterprises of all sizes. Most of this revenue is sensitive to information
technology budgets, which often depend on general economic conditions. The remaining approximately 20% of Information
Worker revenue comes from licenses to OEMs for new PCs and is affected by the level of PC shipments. The next wave of our
flagship product, the 2007 Microsoft Office system, is currently under development.
Products. Microsoft Office; Microsoft Project; Microsoft Visio; SharePoint Portal Server CAL; Microsoft Live Meeting; One Note;
and Office Communication Server.
Competition. Competitors to the Microsoft Office system include many software application vendors such as Apple, Corel,
Google, IBM, Novell, Oracle, Red Hat, Sun Microsystems, and local application developers in Europe and Asia. IBM (Smartsuite)
and Corel (WordPerfect Suite) have measurable installed bases with their office productivity products. Apple may distribute
certain of their application software products with various models of their PCs. The OpenOffice.org project provides a freely
downloadable cross-platform application that also has been adapted by various commercial software vendors to sell under their
brands, including IBM, Novell, Red Hat, and Sun. Corel’s suite and many local software suites around the world are aggressively
priced for OEMs to preinstall on low-priced PCs. In addition to traditional client-side applications, Web-based offerings such as
AjaxWrite, gOffice, iNetOffice, SimDesk, ThinkFree, wikiCalc, or other small projects competing with individual applications, can
also provide an alternative to Microsoft Office system products. Google has announced spreadsheet and word processing
applications as Web-based offerings and also provides an enterprise search offering that competes with SharePoint and our
new enterprise search product. IBM has many different points of competition with Office system products with its Notes and
Workplace offerings.
As we continue to respond to market demand for additional functionality and products, we will compete with additional
vendors, most notably in enterprise content management, collaboration tools, unified messaging, and business intelligence.
These competitors include WebEx, and a number of business intelligence vendors such as Business Objects, Cognos, and
Hyperion.
Microsoft Business Solutions. Microsoft Business Solutions is responsible for Microsoft Dynamics brand business
applications for small and mid-size businesses, large organizations and divisions of global enterprises. It offers financial
management, customer relationship management, supply chain management, and analytics applications. Revenue is derived
from software and services sales, with software sales representing a large majority of total revenue. Software revenues include
both new software licenses and enhancement plans, which provide customers with future software upgrades and on-line
training over the period of the plan. The solutions are delivered through a worldwide network of channel partners and
independent software vendors that provide services, additional related software, and local support.
Products. Microsoft Dynamics AX; Microsoft Dynamics CRM; Microsoft Dynamics GP; Microsoft Dynamics NAV; Microsoft
Dynamics SL; Microsoft Dynamics Retail Management System; Microsoft Partner Program; and Microsoft Office Small Business
Accounting.