Microsoft 2006 Annual Report Download - page 14

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efforts to create our services platform for the next generation of applications, communications, and commerce. Across the
company, software services are at the core of our development efforts.
In fiscal year 2006, we introduced Windows Live and Office Live, which provides small businesses with affordable Internet-
based business services hosted by Microsoft. We rolled out new search services, including beta releases of Windows Live
Search and Windows Live Academic Search. We introduced new and enhanced services for computer safety and computer
maintenance (Windows Live SafetyCenter and Windows Live OneCare), communications (Windows Live Mail and Windows Live
Messenger), and entertainment (Xbox Live). We also created Live Labs, an applied research program that targets Internet
products and services.
Because software services offer strong opportunities for growth, we will continue to refine and improve adCenter, our
advertising engine for Windows Live, MSN and other online offerings. We will deploy new service-based solutions, including
Dynamics CRM Live, which we announced in July 2006. We will also continue to build out our services infrastructure, providing
new tools to help partners and businesses create and host services, and adding new data centers to meet growing consumer
demand for services.
DISTRIBUTION, SALES AND MARKETING
We distribute our products primarily through the following channels: OEM; distributors and resellers; and online.
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 (“VARs”). Many organizations that license products through enterprise
agreements (“EAs”) 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 VARs 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 CDW, Dell, Insight Enterprises, Software House International, and
Software Spectrum. 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, Target, and Wal-Mart. 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 include:
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.
Select. Designed primarily for medium-to-large organizations (greater than 250 licenses), this program allows customers to
acquire perpetual licenses and, at the customer’s election, Software Assurance, which consists of rights to future versions of