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PAGE 19
Professional product support services. Research and development expenses increased $183 million or 11%,
primarily driven by increased headcount-related expenses. Headcount-related expenses increased 8%, driven by
an increase in headcount during the year.
Fiscal year 2007 compared with fiscal year 2006
Server and server application revenue (including CAL revenue) and developer tools, training, and certification
revenue increased $1.1 billion or 13%, and included a favorable impact from foreign currency exchange rates of
$168 million or two percentage points. The increase in server and server application revenue was primarily driven
by increased revenue associated with SQL Server, Windows Server, and Visual Studio. The results reflect broad
adoption of Windows Server products, especially SQL Server which grew over 20%. Consulting and Premier and
Professional product support services revenue increased $428 million or 26%, primarily due to higher demand for
Premier services by corporate enterprises.
Server and Tools operating income increased reflecting the increased revenue, partially offset by growth in
headcount-related expenses and cost of revenue for services. Headcount-related expenses increased 14%,
driven by an increase in headcount during the year. Cost of revenue increased $260 million or 14%, reflecting
growth in Consulting and Premier and Professional product support services.
Fiscal Year 2009 Outlook
We expect continued growth in both product and services revenue driven by strong customer demand for the
recently released Windows Server 2008 and Visual Studio 2008 and upcoming release of SQL Server 2008.
Online Services Business
(In millions, except percentages) 2008 2007 2006
Percentage
Change 2008
versus 2007
Percentage
Change 2007
versus 2006
Revenue $ 3,214 $2,441 $2,296 32% 6%
Operating income (loss) $(1,233) $ (617) $ 5 (100)% *
* Not meaningful
Online Services Business (“OSB”) consists of an on-line advertising platform with offerings for both publishers and
advertisers, personal communications services such as email and instant messaging, online information offerings
such as Live Search, and the MSN portals and channels around the world. We earn revenue primarily from online
advertising, including search, display, and email and messaging services. Revenue is also generated through
subscriptions and transactions generated from online paid services, from advertiser and publisher tools, digital
marketing and advertising agency services, and from MSN narrowband Internet access subscribers. We continue
to launch new online offerings and expect to do so in the future. During fiscal year 2008, we launched new
releases of Windows Live Search, the Windows Live suite of applications and services, and updated our MSN
Video Service. In addition, we launched a new release of adCenter and expanded our advertising platform
portfolio.
During the first quarter of fiscal year 2008, we completed our acquisition of aQuantive, Inc. (“aQuantive”), a
digital marketing business which we expect will play a key role in the development of our advertising business.
aQuantive earns revenue from online advertising and from digital marketing and advertising agency services. We
believe the acquisition will help us build and support next-generation advertiser and publisher solutions in
environments such as cross-media planning, video-on-demand, and Internet protocol television. aQuantive was
consolidated into our results of operations starting August 10, 2007, the acquisition date.
Proposed Acquisition of Yahoo! Inc.
To accelerate our advertising strategy, during fiscal year 2008 we submitted a proposal to the Yahoo! Inc. board
of directors to acquire all of the outstanding shares of Yahoo!. After careful consideration, we determined that the
price demanded by Yahoo! was not in the best interest of our shareholders and we withdrew our proposal to
acquire the