Microsoft 2012 Annual Report Download - page 13

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Entertainment and Devices Division
Entertainment and Devices Division (“EDD”) develops and markets products and services designed to entertain and
connect people. The Xbox 360 entertainment platform, including Kinect, is designed to provide a unique variety of
entertainment choices through the use of our devices, peripherals, content, and online services. Skype is designed to
connect friends, family, clients, and colleagues through a variety of devices. Windows Phone is designed to bring users
closer to the people, applications, and content they need, while providing unique capabilities such as Microsoft Office and
Xbox LIVE. Through a strategic alliance, Windows Phone and Nokia are jointly creating new mobile products and services
and extending established product and services to new markets.
Principal Products and Services: Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360
video games, Xbox 360 accessories; Xbox LIVE; Skype; and Windows Phone.
Competition
Entertainment and devices businesses are highly competitive, characterized by rapid product life cycles, frequent
introductions of new products and game titles, and the development of new technologies. The markets for our products
are characterized by significant price competition, and we anticipate continued pricing pressure from our competitors. Our
competitors vary in size from very small companies with limited resources to very large, diversified corporations with
substantial financial and marketing resources. We compete primarily on the basis of product quality and variety, timing of
product releases, and effectiveness of distribution and marketing.
Our Xbox gaming and entertainment business competes with console platforms from Nintendo and Sony, both of which
have a large, established base of customers. The lifecycle for gaming and entertainment consoles averages five to 10
years. We released Xbox 360, our second generation console, in November 2005. Nintendo and Sony released new
versions of their game consoles in late 2006. We believe the success of gaming and entertainment consoles is
determined by the availability of games for the console, providing exclusive game content that gamers seek, the
computational power and reliability of the console, and the ability to create new experiences via online services,
downloadable content, and peripherals. In addition to Nintendo and Sony, our businesses compete with both Apple and
Google in offering content products and services to the consumer. We believe the Xbox 360 entertainment platform is
positioned well against competitive products and services based on significant innovation in hardware architecture, user
interface, developer tools, online gaming and entertainment services, and continued strong exclusive content from our
own game franchises as well as other digital content offerings.
Windows Phone faces competition primarily from Apple, Google, and Research In Motion. Skype competes primarily with
Apple and Google, which offer a selection of instant messaging, voice, and video communication products.
OPERATIONS
We have operations centers that support all operations in their regions, including customer contract and order processing,
credit and collections, information processing, and vendor management and logistics. The regional center in Ireland
supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, India, Greater
China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond,
Washington, and Reno, Nevada support Latin America and North America. In addition to the operations centers, we also
operate data centers throughout the Americas, Europe, and Asia regions.
To serve the needs of customers around the world and to improve the quality and usability of products in international
markets, we localize many of our products to reflect local languages and conventions. Localizing a product may require
modifying the user interface, altering dialog boxes, and translating text.
We contract most of our manufacturing activities for Xbox 360 and related games, Kinect for Xbox 360, various retail
software packaged products, Surface devices, and Microsoft PC hardware to third parties. Our products may include
some components that are available from only one or limited sources. Our Xbox 360 console and Kinect for Xbox