Microsoft 2008 Annual Report Download - page 9

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PAGE 8
BUSINESS DESCRIPTION (CONTINUED)
used to compensate or charge each segment for such shared costs and to motivate shared effort. Segments
should not be viewed as discrete or easily separable businesses.
Client. Client has overall responsibility for 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 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 most recent version 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 with prior releases. Windows Vista includes advances in security,
digital media, user interfaces, and other areas that enhance the user and developer experience.
Client offerings consist of premium and standard edition Windows operating systems. Premium editions are
those that include additional functionality and are sold at a price above our standard editions.
Products. Windows Vista, including Home, Home Premium, Ultimate, Business, Enterprise and 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, 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 and new, lower price PC form factors gain adoption. Apple
takes an integrated approach to the PC experience and has made inroads in share, particularly in the U.S. and in
the consumer segment.
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. User and usage volumes on
mobile devices are increasing around the world relative to the PC.
Our operating system products compete effectively by delivering innovative software, giving customers choice
and flexibility, 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-based products are integrated server infrastructure and middleware software designed to
support software applications and tools built on the Windows Server operating system. Windows Server-based
products include the server platform including targeted segment solutions, database, storage, management and
operations, service-oriented architecture platform, and security and identity 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-site, in a hosting environment, or in a Web-based environment.
We offer a broad range of consulting services and provide product support services and industry solutions. We
also provide training and certification to developers and information technology professionals about our Server
and Tools and Client platform products.
Approximately 45% of Server and Tools revenue comes from multi-year licensing agreements, approximately
25% is purchased through fully packaged product and transactional volume licensing programs, and
approximately 10% comes from licenses sold to OEMs. The remainder of Server and Tools revenue comes from
consulting and product support services.
Major releases from Server and Tools in fiscal year 2008 included Windows Server 2008 and Visual Studio
2008. Windows Server 2008 provides virtualization technologies, security enhancements, new Internet tools and
infrastructure, and management utilities while Visual Studio 2008 provides rapid application development, team
collaboration tools, and advances in building connected applications. In fiscal year 2009, we plan to release
Microsoft SQL Server 2008 which will deliver advances in database scalability, performance, security, and policy-
based management.