Microsoft 2013 Annual Report Download - page 23

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Server and Tools operating income increased primarily due to revenue growth, offset in part by higher costs of providing
products and services and increased sales and marketing expenses. Cost of revenue increased $678 million or 22%,
primarily reflecting higher Enterprise Services headcount-related expenses. Sales and marketing expenses grew $154
million or 3%, reflecting increased corporate marketing activities.
Online Services Division
(In millions, except percentages)
2013
2012
2011
Percentage
Change 2013
Versus 2012
Percentage
Change
2012
Versus 2011
Revenue
$ 3,201
$ 2,867
$ 2,607
12%
10%
Operating loss
$ (1,281)
$ (8,125)
$ (2,657)
*
*
* Not meaningful
Online Services Division (“OSD”) develops and markets information and content designed to help people simplify tasks
and make more informed decisions online, and help advertisers connect with audiences. OSD offerings include Bing, Bing
Ads, and MSN. Bing and MSN generate revenue through the sale of search and display advertising, accounting for nearly
all of OSD’s revenue.
Fiscal year 2013 compared with fiscal year 2012
Online advertising revenue grew $409 million or 16% to $3.0 billion, reflecting an increase in search advertising revenue,
offset in part by a decrease in display advertising revenue. Search revenue grew primarily due to increased revenue per
search, resulting from ongoing improvements in ad products, while display advertising revenue decreased primarily due to
industry-wide market pressure.
OSD’s operating loss decreased, primarily due to the prior year goodwill impairment charge of $6.2 billion. Operating loss
was further reduced by higher revenue and lower cost of revenue and operating expenses. Cost of revenue decreased
$302 million or 12%, driven by a $271 million decrease in traffic acquisition costs as well as lower Yahoo! reimbursement
costs. Sales and marketing expenses were $120 million or 15% lower, due mainly to decreased corporate sales and
marketing activities. Research and development costs increased $94 million or 7%, due primarily to higher headcount-
related expenses resulting mainly from increased headcount.
Fiscal year 2012 compared with fiscal year 2011
Online advertising revenue grew $317 million or 14% to $2.6 billion, reflecting continued growth in search advertising
revenue, offset in part by decreased display advertising revenue. Search revenue grew due to increased revenue per
search, increased volumes reflecting general market growth, and share gains in the U.S. According to third-party sources,
Bing organic U.S. market share for the month of June 2012 was approximately 16%, and grew 120 basis points year over
year. Bing-powered U.S. market share, including Yahoo! properties, was approximately 26% for the month of June 2012,
down 100 basis points year over year.
OSD’s fiscal year 2012 operating loss reflects a goodwill impairment charge of $6.2 billion, which we recorded as a result
of our annual goodwill impairment test in the fourth quarter. The non-cash, non-tax-deductible charge related mainly to
goodwill acquired through our 2007 acquisition of aQuantive, Inc. Excluding the $6.2 billion goodwill impairment charge,
OSD’s operating loss was reduced by higher revenue and lower sales and marketing expenses and cost of revenue.
Sales and marketing expenses decreased $321 million or 29%, due mainly to lower marketing spend. Cost of revenue
decreased $208 million, driven by lower Yahoo! reimbursement costs, amortization, and online operating costs.