Microsoft 2010 Annual Report Download - page 8

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7
• Microsoft Dynamics Online family of customer relationship management (“CRM”) and enterprise
resources planning services; and
• our Azure family of services, including a scalable operating system with compute, storage, hosting and
management capabilities, a relational database, and a platform that helps developers connect
applications and services in the cloud or on premise.
We also conduct research and develop advanced technologies for future software products and services. We believe
that delivering breakthrough innovation and high-value solutions through our integrated software platform is the key
to meeting our customers’ needs and to our future growth. We believe that we will continue to lay the foundation for
long-term growth by delivering new products and services, creating new opportunities for partners, improving
customer satisfaction, and improving our internal processes. Our focus is to build on this foundation through ongoing
innovation in our integrated software platforms; by delivering compelling value propositions to customers; by
responding effectively to customer and partner needs; and by continuing to emphasize the importance of product
excellence, business efficacy, and accountability.
OPERATING SEGMENTS
We operate our business in five segments: Windows & Windows Live Division, Server and Tools, Online Services
Division, Microsoft Business Division, and Entertainment and Devices Division. Our segments provide management
with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and
objectives across the development, sales, marketing, and services organizations, and they provide a framework for
timely and rational allocation of development, sales, marketing, and services resources within businesses.
Windows & Windows Live Division
Windows & Windows Live Division (“Windows Division”) has overall responsibility for development and marketing of
the Windows operating system, Windows Live and Internet Explorer. Windows Division revenue growth is largely
correlated to the growth of the PC market, as the original equipment manufacturer (“OEM”) distribution channel
accounts for approximately 80% of total Windows Division revenue. In addition to PC market changes, Windows
OEM revenue is impacted by:
• hardware market changes driven by shifts between emerging markets and developed market, consumer
PCs and business PCs, and the impact of lower cost netbook PCs;
• the attachment of Windows to PCs shipped and changes in inventory levels within the OEM channel; and
• pricing changes and promotions, the pricing variation associated with OEM channel shifts from local and
regional system builders to large, multinational OEMs, and other pricing factors.
Windows Division offerings consist of premium and standard edition Windows operating systems and online software
and services through Windows Live. Premium Windows operating systems are those that include additional
functionality and are sold at a price above our standard editions.
Products and Services: Windows operating system: Windows 7, including Home Basic, Home Premium,
Professional, Ultimate, Enterprise, and Starter Edition; Windows Vista, including Home Basic, Home Premium,
Ultimate, Business, Enterprise and Starter Edition; and Windows XP Home. Windows Live suite of applications
and web services.
Competition
The Windows operating system faces competition from various commercial software products offered by well-
established companies, including Apple and Google, and from the Linux operating system. Linux is derived from Unix
and is available without payment under a General Public License. Partners such as Hewlett-Packard and Intel have
been actively working with alternative Linux-based operating systems.
The Windows operating system also faces competition from alternative platforms and new devices that may reduce
consumer demand for PCs. User and usage volumes on mobile devices are increasing around the world relative to
the PC. Competitors such as Apple, Google, Mozilla, and Opera Software Company offer software that competes
with the Web browsing capabilities of Internet Explorer, a component of the Windows operating system. Our
operating system products compete effectively by delivering innovative software, giving customers choice and
flexibility, a familiar, easy-to-use interface, compatibility with a broad range of hardware and software applications,
and the largest support network for any operating system.