Microsoft 2010 Annual Report Download - page 14

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Intelligent computing
As computing power increases, our ability to build software that has the intelligence to understand a user’s
preferences based on the tools and information they have accessed in the past and anticipate their future
needs is rapidly improving. This development will enable us to deliver a new generation of software solutions
that make people more productive by enabling them to focus more on what they want to accomplish and less
on the steps needed to use technology.
DISTRIBUTION, SALES, AND MARKETING
We market and distribute our products and services primarily through the following channels: OEM; distributors and
resellers; and online.
OEM
We license our software to OEMs for distribution as pre-installed software on new PCs. The most significant part of
the OEM business for us is licensing of the Windows operating system. We also license to OEMs certain server
operating systems and desktop applications such as our Microsoft Office system and consumer software products. In
addition to licensing them software, we market through OEMs hardware devices and software as services, including
our Windows Live Essentials suite. We have OEM agreements covering one or more of our products with virtually all
of the multinational OEMs, including Acer, ASUSTek, Dell, Fujitsu, Hewlett-Packard, Lenovo, NEC, Samsung, Sony,
and Toshiba, and the regional OEMs, including Medion, MSI, and Positivo. In addition, a portion of the 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 and services. Organizations license our products and services primarily through large account
resellers (“LARs”), distributors, value-added resellers (“VARs”), OEMs, system builder channels and retailers.
Additionally, solution integrators, independent software vendors, web agencies and developers advise organizations
on the acquisition of licenses of our products and services. Many organizations that license products through
enterprise agreements 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. Distributors resell primarily to VARs and VARs typically reach the small-
sized 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, and Software House International. Our Microsoft
Dynamics software offerings are licensed to enterprises through a global network of channel partners providing
vertical solutions and specialized services. We distribute our retail packaged 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 licensing
Designed primarily for small-to-medium organizations (5 to over 250 licenses), these programs allow customers
to acquire perpetual or subscription licenses and, at the customer’s election, rights to future versions of
software products over a specified time period (two or three years depending on the Open program used). The
offering that conveys rights to future versions of certain software products 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.