Microsoft 2013 Annual Report Download - page 13

Product and Service Development and Intellectual Property
We develop most of our products and services internally. Internal development allows us to maintain competitive
advantages that come from product differentiation and closer technical control over our products and services. It also
gives us the freedom to decide which modifications and enhancements are most important and when they should be
implemented. We strive to obtain information as early as possible about changing usage patterns and hardware advances
that may affect software design. Before releasing new software platforms, we provide application vendors with a range of
resources and guidelines for development, training, and testing. Generally, we also create product documentation
internally.
We protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to
ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and
hardware products, services, business plans, and branding. We are a leader among technology companies in pursuing
patents and currently have a portfolio of over 35,000 U.S. and international patents issued and over 38,000 pending.
While we employ much of our internally developed intellectual property exclusively in Microsoft products and services, we
also engage in outbound and inbound licensing of specific patented technologies that are incorporated into licensees’ or
Microsoft’s products. From time to time, we enter into broader cross-license agreements with other technology companies
covering entire groups of patents. We also purchase or license technology that we incorporate into our products or
services. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective,
such as promoting industry standards, advancing interoperability, or attracting and enabling our external development
community.
While it may be necessary in the future to seek or renew licenses relating to various aspects of our products and business
methods, we believe, based upon past experience and industry practice, such licenses generally could be obtained on
commercially reasonable terms. We believe our continuing research and product development are not materially
dependent on any single license or other agreement with a third party relating to the development of our products.
Investing in the Future
Microsoft’s success is based on our ability to create new and compelling products, services, and experiences for our
users, to initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive
broad adoption of our products and services. We invest in a range of emerging technology trends and breakthroughs that
we believe offer significant opportunities to deliver value to our customers and growth for the company. We maintain our
long-term commitment to research and development across a wide spectrum of technologies, tools, and platforms
spanning communication and collaboration, information access and organization, entertainment, business and
e-commerce, advertising, and devices.
While our main research and development facilities are located in Redmond, Washington, we also operate research and
development facilities in other parts of the U.S. and around the world, including Canada, China, Denmark, Estonia,
Germany, India, Ireland, Israel, and the United Kingdom. This global approach helps us remain competitive in local
markets and enables us to continue to attract top talent from across the world. We generally fund research at 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 through our devices and services strategy.