Microsoft 2012 Annual Report Download - page 15

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the corporate level to ensure that we are looking beyond immediate product considerations to opportunities further in the
future. We also fund research and development activities at the business segment level. Much of our business segment
level research and development is coordinated with other segments and leveraged across the company.
In addition to our main research and development operations, we also operate Microsoft Research. Microsoft Research is
one of the world’s largest computer science research organizations, and works in close collaboration with top universities
around the world to advance the state-of-the-art in computer science, providing us a unique perspective on future
technology trends.
Based on our assessment of key technology trends and our broad focus on long-term research and development, we see
significant opportunities to drive future growth in smart connected devices, cloud computing, entertainment, search,
communications, and productivity.
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 distribute software through OEMs that pre-install our software on new PCs, servers, smartphones, and other
intelligent devices that they sell to end customers. The largest component of the OEM business is the Windows operating
system pre-installed on PCs. OEMs also sell hardware pre-installed with other Microsoft products, including server and
embedded operating systems and applications such as our Microsoft Office suite. In addition to these products, we also
market through OEMs software services such as our Windows Live Essentials suite.
There are two broad categories of OEMs. The largest OEMs, many of which operate globally, are referred to as “Direct
OEMs,” as our relationship with them is managed through a direct agreement between Microsoft and the manufacturer.
We have distribution agreements covering one or more of our products with virtually all of the multinational OEMs,
including Acer, ASUS, Dell, Fujitsu, HTC, Hewlett-Packard, LG, Lenovo, Nokia, Samsung, Sony, Toshiba, and with many
regional and local OEMs. The second broad category of OEMs consists of lower-volume PC manufacturers (also called
“system builders”), which source their Microsoft software for pre-installation and local redistribution primarily through the
Microsoft distributor channel rather than through a direct agreement or relationship with Microsoft. Some of the distributors
in the Microsoft distributor channel are global, such as Ingram Micro and Tech Data, but most operate at a local or
regional level.
Distributors and Resellers
Many organizations that license our products and services through enterprise agreements transact directly with us, with
sales support from solution integrators, independent software vendors, web agencies, and developers that advise
organizations on licensing our products and services (“Enterprise Software Advisors”). Organizations also license our
products and services indirectly, primarily through large account resellers (“LARs”), distributors, value-added resellers
(“VARs”), OEMs, system builder channels, and retailers. 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 small-sized and medium-sized organizations. Enterprise Software Advisors typically are also authorized as LARs
and operate as resellers for our other licensing programs, such as the Select Plus and Open licensing programs
discussed under “Licensing Options” below. 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, including Microsoft Stores. Individual consumers obtain these products
primarily through retail outlets, such as Wal-Mart and Dixons. 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.