Microsoft's ambitions are anything but small. The world's #1 software company develops and sells a variety of products used by consumers and businesses. Its core products are the ubiquitous Windows PC operating system and the Office business productivity application suite that are sold in part through PC makers such as Acer, Lenovo, Dell, Hewlett-Packard, and Toshiba, who pre-install the software on devices. Microsoft also sells directly online and through resellers. Other products include enterprise applications (Microsoft Dynamics), server and storage software, and video game consoles (Xbox). It also makes mobile phone software. Microsoft is acquiring Nokia's handset business.
Microsoft operates through subsidiaries in more than 100 countries, but the company rings up more than half of its sales in the US.
Microsoft operates through five business segments: the Windows Division, Server and Tools, Online Services Division, Microsoft Business Division, and the Entertainment and Devices Division.
Sales and Marketing
Microsoft sells its products and services online and through OEMs, distributors, and resellers. The company does spend some money promoting its products and services -- it reported advertising expenses of around $2.6 billion in fiscal 2013 and about $1.6 billion in fiscal 2012.
The company's revenue increased 6% and its net income increased 29% in fiscal 2013 compared with fiscal 2012. The spike was primarily due to higher revenue from the Server and Tools segment combined with revenue from new products and services the company rolled out during the year. The big bump in net income during fiscal 2013 was primarily attributed to the increase in operating income. Operating income grew mainly due to the $6.2 billion goodwill impairment charge related to the company’s OSD business recorded during the prior year.
In a bid to reshape itself for the mobile era, which to date has largely passed Microsoft by, the company has agreed to buy the Devices & Services business of Finland's Nokia in a $7.2 billion all-cash deal that is expected to close in early 2014. The deal also brings Nokia's CEO (a former Microsoft executive) back in house as a potential successor for departing Microsoft CEO Steve Ballmer, who has announced plans to retire.
Prior to the announcement of the Nokia deal, Microsoft had made little headway into a mobile OS market dominated by Google's Android, Apple's iOS, and the BlackBerry platform. To make a greater impact in the mobile space, Microsoft agreed in 2011 to power the smartphones of Nokia with Windows Mobile, following Nokia's decision to abandon its Symbian platform. The partnership came on the heels of the appointment of Stephen Elop, the former head of Microsoft's Office division, as Nokia's first non-Finn CEO in late 2010. Nokia, a longtime global dominator of basic feature phones, has struggled to maintain its grip on the market as consumers opt for smartphones made by its rivals.
The company is striving to make its operating systems, software, and services as the de facto standard for accessing, communicating, and doing business over the Internet using both wired and wireless devices.
In July 2013 Microsoft unveiled a plan to restructure its operations. The company's engineering efforts will be organized under four main areas: operating systems, apps, cloud, and devices. The reorganization, dubbed One Microsoft, is intended to unite the company around a single strategy with all the varied products working together to further the success of core offerings.
In early 2013 Microsoft agreed to contribute $2 billion as part of a $24.4 billion leveraged buyout offer for struggling PC maker Dell (other investors include Dell CEO Michael Dell and Silver Lake Partners). Microsoft made the loan in support of the PC industry's longer-term well-being and to keep a key Windows customer healthy.
Mergers and Acquisitions
As part of an effort to add social networking to its expanding stable of cloud services, in 2012 Microsoft bought social networking start-up Yammer for $1.2 billion in cash. Yammer enables businesses to create their own private social networks, where co-workers can post status updates, news, links, and share what they are working on. The company became a unit within Microsoft's Office division, and is being integrated into other of its collaboration and communications offerings, such as SharePoint, Office 365, Dynamics, and Skype. Established in 2008, Yammer claims more than five million corporate users, though only about 20% of those pay for premium services, with the remainder using the basic free service.
Also that year, Microsoft bought Perceptive Pixel, a company with expertise in multi-touch display technology. That purchase played to one of the highly-touted new capabilities that Windows 8 brought to market.
In late 2011 the company paid $8.5 billion in cash to acquire Internet video calling software maker Skype, giving it a leg up in the booming Internet communications market, where it goes head to head with Google. In addition to using Skype's voice and video technology to enhance products such as the Xbox, which could exploit more robust communications features for its multi-player online gaming service, Microsoft was keen to tap Skype's user base, which totals about 100 million users a month.