Microsoft 2007 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 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 as the OEM channel accounts for over 80% of total Client
revenue.
We released Windows Vista, the latest generation of the Windows operating system, in fiscal year 2007. This
release concluded a major development phase that we believe resulted in a significantly more manageable and
powerful PC operating system compared to prior releases. Windows Vista includes advances in security, digital
media, user interfaces, and other areas that enhance the user and developer experience.
Products. Windows Vista, including Home, Home Premium, Ultimate, Business, and Enterprise Starter Edition;
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 software server products, services, and solutions.
Windows Server products are integrated server infrastructure and middleware software designed to support
software applications and tools built on the Windows Server operating system. Windows Server products include
the server platform, database, storage, management and operations, service-oriented architecture platform, and
security software. The segment also builds standalone and software development lifecycle tools for software
architects, developers, testers, and project managers. Server products can be run on premise or in a hosting
environment.
We offer a broad range of consulting services and provide product support services and customer industry
solutions. The segment also provides training and certification to developers and information technology
professionals about our Server and Client 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 45% of Server revenue comes from multi-year licensing agreements, approximately 30% is
purchased through fully packaged product and transactional volume licensing programs, and approximately 10%
comes from licenses sold to OEMs. The remainder of our revenue comes from consulting and product support
services.
Products and Services. Windows Server operating system; Microsoft SQL Server; Microsoft Enterprise
Services; product support services; Visual Studio; System Center products; Forefront Security products; Biz Talk
Server; MSDN; and TechNet, 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. 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. Server virtualization
platform providers based on Linux, such as VMWare, represent another means by which Linux competes with the
Windows server operating system.