Microsoft 2008 Annual Report Download - page 11

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BUSINESS DESCRIPTION (CONTINUED)
opportunities for merchants. OSB also competes for narrowband Internet access users with AOL, Earthlink, and
other ISPs for dial-up Internet access in the United States. The Internet advertising industry has grown
significantly over the past several years, and we anticipate that this trend will continue. Competitors are
aggressively developing Internet offerings that seek to provide more effective ways of connecting advertisers with
audiences through enhanced functionality in communication services, improvements in information services such
as Internet search, and improved advertising infrastructure and support services. We have developed our own
algorithmic search engine to provide end users with more relevant search results, expanded search services, and
a broader selection of content. To support the growth of our advertising business, we also are investing in our
communication services, technology, operations, and sales efforts. We will continue to introduce new products
and services, including Windows Live services that are aimed at attracting additional users through improvements
in the user online experience. As consumers migrate from narrowband to broadband Internet access, we expect
our narrowband Internet access subscriber base to continue to decline and this portion of our business to
decrease in importance. We believe that we can compete effectively across the breadth of our Internet services
by providing users with software innovation in the form of information and communication services that help them
find and use the information and experiences they want online and by providing merchants with effective
advertising results through improved systems and sales support.
Microsoft Business Division. Microsoft Business Division (“MBD”) offerings consist of the Microsoft Office
system and Microsoft Dynamics business solutions. Microsoft Office system products are designed to increase
personal, team, and organization productivity through a range of programs, services, and software solutions.
Growth of revenue from the Microsoft Office system offerings, which generate over 90% of MBD revenue,
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 content management, enterprise search, collaboration, unified
communications and business intelligence. Microsoft Dynamics products provide business solutions for financial
management, customer relationship management, supply chain management, and analytics applications for small
and mid-size businesses, large organizations, and divisions of global enterprises.
We evaluate MBD results based upon the nature of the end user in two primary parts—business revenue
which includes Microsoft Office system revenue generated through volume licensing agreements and Microsoft
Dynamics revenue, and consumer revenue which includes revenue from retail packaged product sales and OEM
revenue. Approximately 80% of MBD revenue is generated from sales to businesses. Revenue from this category
generally depends upon the number of information workers in a licensed enterprise and is therefore relatively
independent of the number of PCs sold in a given year. Approximately 20% of MBD revenue is derived from sales
to consumers. Most of this revenue is generated from new licenses acquired through fully packaged products and
licenses sold through OEMs for new PCs and is generally affected by the level of PC shipments and product
launches.
Products. Microsoft Office; Microsoft Project; Microsoft Visio; Microsoft Office SharePoint Server; Microsoft
PerformancePoint; Microsoft Office Live; FAST ESP; Microsoft Exchange Server; Microsoft Exchange Hosted
Services; Microsoft Office Live Meeting; Microsoft Office Communication Server; Microsoft Office Communicator;
Microsoft Tellme Service, Microsoft Dynamics AX; Microsoft Dynamics CRM; Microsoft Dynamics CRM Online;
Microsoft Dynamics GP; Microsoft Dynamics NAV; Microsoft Dynamics SL; Microsoft Dynamics Retail
Management System; Microsoft Partner Program; and Microsoft Office Accounting.
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 its application software products with various models
of its 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. Google has launched Google Apps, a hosted messaging and productivity suite, and
also provides an enterprise search offering that competes with Microsoft Office SharePoint Server for Search, our
new enterprise search product. 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. IBM has many different points of competition with Office system products with
its Notes and Workplace offerings.