Microsoft 2011 Annual Report Download - page 11

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11
Online Services Division
Online Services Division (“OSD”) develops and markets information and content designed to help people simplify
tasks and make more informed decisions online, and that help advertisers connect with audiences. OSD offerings
include Bing, MSN, adCenter, and advertiser tools. Bing and MSN generate revenue through the sale of search
and display advertising. Search and display advertising generally accounts for nearly all of OSD’s annual
revenue.
We provide updated and new online offerings on a frequent basis. In December 2009, we entered into a definitive
agreement with Yahoo! whereby Microsoft will provide the exclusive algorithmic and paid search platform for
Yahoo! Web sites worldwide. We completed the algorithmic transition in the U.S. and Canada in July 2010 and
the paid search transition in October 2010 and have begun transitioning algorithmic search in international
markets. We believe this agreement will allow us to improve the effectiveness and increase the value of our
search offering through greater scale in search queries and an expanded and more competitive search and
advertising marketplace.
Principal Products and Services: Bing; Microsoft adCenter; MSN; and Atlas online tools for advertisers.
Competition
OSD competes with Google, Yahoo!, and a wide array of Web sites and portals that provide content and online
offerings to end users. We compete with these organizations to provide advertising opportunities for merchants.
Competitors are continuously developing Internet offerings that seek to provide more effective ways of connecting
advertisers with audiences. We believe our search engine, Bing, helps users make faster, more informed
decisions by providing relevant search results, expanded search services, social recommendations, and a broad
selection of content. We have enhanced the user interface to bring a richer search experience. We also invest in
improving the scale of our advertising platform to serve both owned and operated and third-party online
properties. We will continue to introduce new products and services to improve the user online experience. We
believe that we can compete effectively by attracting new users, understanding their intent, and matching their
intent with relevant content, advertiser offerings, and software services.
Microsoft Business Division
Microsoft Business Division (“MBD”) offerings consist of the Microsoft Office system (comprising mainly Office,
SharePoint, Exchange and Lync) and Microsoft Dynamics business solutions. Microsoft Office system products
are designed to increase personal, team, and organization productivity through a range of programs, services,
and software solutions, which may be delivered either on premise or as a cloud-based service. Growth of revenue
from the Microsoft Office system offerings, which generate over 90% of MBD revenue, depends on our ability to
add value to the core Office product set and to continue to expand our product offerings in other areas such as
content management, enterprise search, collaboration, unified communications, and business intelligence.
Microsoft Dynamics products provide business solutions for financial management, customer relationship
management (“CRM”), supply chain management, and analytics applications for small and mid-size businesses,
large organizations, and divisions of global enterprises.
Approximately 80% of MBD revenue is generated from sales to businesses, which includes Microsoft Office
system revenue generated through volume licensing agreements and Microsoft Dynamics revenue. Revenue
from this category generally depends upon the number of information workers in a licensed enterprise and is
therefore relatively independent of the number of PCs sold in a given year. Approximately 20% of MBD revenue is
derived from sales to consumers, which includes revenue from retail packaged product sales and OEM revenue.
This revenue generally is affected by the level of PC shipments and by product launches.
Principal Products and Services: Microsoft Office; Microsoft Exchange; Microsoft SharePoint; Microsoft
Lync; Microsoft Dynamics ERP and Dynamics CRM; and Microsoft Office Web Apps, which are the online
companions to Microsoft Word, Excel, PowerPoint, and OneNote. In June 2011, MBD launched Office 365,
which is an online services offering of Microsoft Office, Exchange, SharePoint, and Lync.
Competition
Competitors to the Microsoft Office system include software application vendors such as Adobe, Apple, Corel,
Google, IBM, Oracle, and numerous Web-based competitors as well as local application developers in Asia and