Microsoft 2011 Annual Report Download - page 9

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9
system with computing, storage, hosting and management capabilities, and Microsoft SQL Azure, a
relational database.
We also conduct research and develop advanced technologies for future software products and services. We
believe that delivering innovative, high-value solutions through our integrated software and services platforms is
the key to meeting our customers’ needs and to our future growth. We believe that we will continue to grow by
delivering compelling new products and services, creating new opportunities for partners, improving customer
satisfaction, and improving our service excellence, business efficacy, and internal processes.
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. Additional information on our operating segments and geographic and product information is
contained in Note 21 – Segment Information and Geographic Data of the Notes to Financial Statements.
Windows & Windows Live Division
Windows & Windows Live Division (“Windows Division”) develops and markets PC operating systems, related
software and online services, and PC hardware products. This collection of software, hardware, and services is
designed to simplify everyday tasks through efficient Web browsing and seamless operations across the user’s
hardware and software. Windows Division revenue growth is largely correlated to the growth of the PC market
worldwide, as approximately 75% of total Windows Division revenue comes from Windows operating system
software purchased by original equipment manufacturers (“OEMs”), which they pre-install on equipment they sell.
In addition to PC market changes, Windows revenue is impacted by:
• hardware market changes driven by shifts between developed markets and emerging markets,
consumer PCs and business PCs, and among varying forms of computing devices;
• the attachment of Windows to PCs shipped and changes in inventory levels within the OEM channel;
and
• pricing changes and promotions, pricing variation associated with OEM channel shifts from local and
regional system builders to large, multinational OEMs, and different pricing of Windows versions
licensed.
Principal Products and Services: Windows 7 and prior versions of the Windows operating system;
Windows Live suite of applications and web services; and Microsoft PC hardware products.
Competition
The Windows operating system faces competition from various commercial software products offered by well-
established companies, mainly Apple and Google. The Windows operating system also faces competition from
alternative platforms and devices that may reduce demand for PCs. User and usage volumes on mobile devices
are increasing worldwide relative to the PC. We believe Windows competes effectively by giving customers
choice, flexibility, security, a familiar and easy-to-use interface, compatibility with a broad range of hardware and
software applications, and the largest support network for any operating system.
Windows Live software and services compete with Apple, Google, Yahoo!, and a wide array of Web sites and
portals that provide communication and sharing tools and services. Our PC hardware products face competition
from computer and other hardware manufacturers, many of which are also current or potential partners.
Server and Tools
Server and Tools develops and markets server software, software developer tools, services, and solutions that
are designed to make information technology professionals and developers and their systems more productive
and efficient. Server software is integrated server infrastructure and middleware designed to support software
applications built on the Windows Server operating system. This includes the server platform, database, storage,
management and operations, service-oriented architecture platform, security and identity software. Server and