Microsoft 2006 Annual Report Download - page 15

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PAGE 14
BUSINESS DESCRIPTION (CONTINUED)
certain software products, support, tools, and training over a specified time period (generally three years). Similar to the Open
program, customers can acquire licenses only, acquire licenses with Software Assurance, or renew Software Assurance upon
the expiration of existing volume licensing agreements.
Enterprise Agreement. The Enterprise Agreement is targeted at medium and large organizations that want to acquire
perpetual licenses to software products for all or substantial parts of their enterprise, along with rights to future versions of
certain software products, support, tools, and training over a specified time period (generally three years).
Online Services. We distribute online content and services through MSN and other online channels. MSN delivers Internet
access and various premium services and tools to consumers. MSN also delivers online e-mail and messaging communication
services and information services such as online search, advertising, and premium content. Home and Entertainment operates
the Xbox Live service which allows customers to participate in the gaming experience with other subscribers online. Microsoft
Business Solutions operates the Microsoft Small Business Center portal, which is delivered online. This portal provides tools and
expertise for small-business owners to build, market, and manage their businesses online. Other services delivered online
include Microsoft Developer Networks subscription content and updates, periodic product updates, and online technical and
practice readiness resources to support our partners in developing and selling our products and solutions.
CUSTOMERS
Our customers include individual consumers, small and medium-sized organizations, enterprises, governmental institutions,
educational institutions, Internet Service Providers, application developers, and OEMs. Consumers and small- and medium-sized
organizations obtain our products primarily through resellers and OEMs. Sales to Dell and its subsidiaries in the aggregate
accounted for approximately 11% of fiscal year 2006 and 10% in each of fiscal year 2005 and 2004 revenue. These sales were
made primarily through our OEM and volume licensing channels and cover a broad array of products including Windows PC
operating systems, Microsoft Office, and server products. Our practice is to ship our products promptly upon receipt of purchase
orders from customers; consequently, backlog is not significant.
EMPLOYEES
As of June 30, 2006, we employed approximately 71,000 people on a full-time basis, 44,000 in the United States and 27,000
internationally. Of the total, 28,000 were in product research and development, 21,000 in sales and marketing, 13,000 in
product support and consulting services, 2,000 in manufacturing and distribution, and 7,000 in general and administration. Our
success is highly dependent on our ability to attract and retain qualified employees. None of our employees are subject to
collective bargaining agreements.
AVAILABLE INFORMATION
Our Internet address is www.microsoft.com. There we make available, free of charge, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable
after we electronically file such material with or furnish it to the Securities and Exchange Commission (“SEC”). Our SEC reports
can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this
or any other report we file with or furnish to the SEC.
RISK FACTORS
Challenges to our business model may reduce our revenues and operating margins. Our business model has been based
upon customers paying a fee to license software that we developed and distributed. Under this license-based software model,
software developers bear the costs of converting original ideas into software products through investments in research and
development, offsetting these costs with the revenue received from the distribution of their products. We believe the license-
based software model has had substantial benefits for users of software, allowing them to rely on our expertise and the
expertise of other software developers that have powerful incentives to develop innovative software that is useful, reliable, and