Microsoft 2006 Annual Report Download - page 9

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PAGE 8
BUSINESS DESCRIPTION (CONTINUED)
Client. Client has overall responsibility for the technical architecture, engineering and product delivery of our Windows product
family, and is also responsible for our relationships with personal computer manufacturers, including multinational and regional
original equipment manufacturers (“OEMs”). The segment includes sales and marketing expenses for the Windows client
operating system and product development efforts for the Windows platform. Client revenue growth is correlated with the
growth of purchases of personal computers from OEMs that pre-install versions of Windows operating systems because the
OEM channel accounts for over 80% of total Client revenue.
The next generation of the Windows operating system, Windows Vista, is under development. This development phase
represents a major investment that we expect will result in a significantly more manageable and powerful PC operating system
than previously released by Microsoft. Windows Vista will include advances in security, digital media, user interfaces, and other
areas that will enhance the user and developer experience.
Products. Windows XP Professional and Home; Media Center Edition; Tablet PC Edition; and other standard Windows
operating systems.
Competition. Client faces strong competition from well-established companies with differing approaches to the PC market.
Competing commercial software products, including variants of Unix, are supplied by competitors such as Apple Computer,
Hewlett-Packard, IBM, and Sun Microsystems. The Linux operating system, which is also derived from Unix and is available
without payment under a General Public License, has gained some acceptance as competitive pressures lead PC OEMs to
reduce costs. The Windows operating system also faces competition from alternative platforms and new devices that may
reduce consumer demand for traditional personal computers. Competitors such as Mozilla offer software that competes with
the Internet Explorer Web browsing capabilities of Windows products. Apple Computer, Real Networks, and others compete with
Windows Media Player. Our operating system products compete effectively by delivering innovative software, a familiar, easy-to-
use interface, compatibility with a broad range of hardware and software applications, and the largest support network for any
operating system.
Server and Tools. Server and Tools develops and markets Windows Server products, including Windows Server operating
systems. Windows Server products are integrated server infrastructure software that are designed to support end-to-end
software applications and tools built on the Windows Server 2003 operating system. Windows Server products include the
server platform, operations, security, applications and collaboration software. The segment also builds standalone and software
development lifecycle tools for software architects, developers, testers and project managers.
We offer a broad range of consulting services and provide product support services. The segment also provides training and
certification to developers and information technology professionals about our Server and PC platform products. Server and
Tools also includes the Enterprise Partner Group, which is responsible for sales, partner management and partner programs for
medium and large organizations; and the Public Sector sales and marketing organization.
Approximately half of Server revenue comes from multi-year licensing agreements, one third is purchased through fully
packaged product and transactional volume licensing programs, and approximately 10% comes from licenses sold to OEMs.
Approximately 15% of revenue comes from consulting and product support services.
Products and Services. Windows Server operating system; Microsoft SQL Server; Exchange Server; Microsoft Consulting
Services; product support services; Visual Studio; System Center products; Forefront security family of products; and Biz Talk
Server, among others.
Competition. Our server operating system products face intense competition from a wide variety of server operating systems
and server applications, offered by companies with a variety of market approaches. Vertically integrated computer
manufacturers such as Hewlett-Packard, IBM, and Sun Microsystems offer their own variant of Unix preinstalled on server
hardware. Nearly all computer manufacturers offer server hardware for the Linux operating system. IBM’s endorsement of Linux
has aided the acceptance of Linux as an alternative to Unix and Windows server operating systems. Linux’s competitive position
has also benefited from the large number of compatible applications now produced by many leading commercial software
developers and non-commercial software developers. A number of companies supply versions of Linux, including Novell and
Red Hat.
We compete in the business of providing enterprise-wide computing solutions with several companies that provide solutions
and middleware technology platforms. IBM and Sun Microsystems lead a group of companies focused on the Java 2 Platform
Enterprise Edition (J2EE). Commercial software developers that provide competing server applications for PC-based distributed
client/server environments include CA, IBM, and Oracle.