Microsoft 2007 Annual Report Download - page 14

PAGE 13
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 Dynamics 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 certain software products, support, tools, and training over a specified time period
(generally three years). Similar to the Open program, customers can acquire licenses only, acquire licenses with
Software Assurance, or renew Software Assurance upon the expiration of existing volume licensing agreements.
Enterprise Agreement. The Enterprise Agreement is targeted at medium and large organizations that want to
acquire perpetual licenses to software products for all or substantial parts of their enterprise, along with rights to
future versions of certain software products, support, tools, and training over a specified time period (generally
three years).
Online. We distribute online content and services through MSN and other online channels. OSB delivers
Internet access and various premium services and tools to consumers. OSB also delivers online e-mail and
messaging communication services and information services such as online search, advertising, and premium
content. EDD operates the Xbox Live service which allows customers to participate in the gaming experience with
other subscribers online. We operate and deliver the Microsoft Small Business Center portal. This portal provides
tools and expertise for small-business owners to build, market, and manage their businesses online.