companies to use the average sales price of each undelivered element of software arrangements to unbundle revenue.  Prior authoritative guidance allowed a comparison of the total price differential between a licensed product sold through different channels of distribution to derive the value of undelivered elements offered to customers acquiring product from one channel but not the other.  Upon adoption of this new rule in the fourth quarter of fiscal 1999, the percentages of the total arrangement treated as unearned decreased.  This change reduced the amount of Microsoft Windows and Microsoft Office sales treated as unearned and increased the amount of revenue recognized upon shipment.  Additionally, as part of the Company’s long range planning process and a review of product shipment cycles, it was determined that the life cycle of Windows should be extended from two years to three years.



Business Divisions

Microsoft has three major segments:  Productivity Applications and Developer; Windows Platforms; and Consumer and Other.



Productivity Applications and Developer

Productivity Applications and Developer revenue was $7.04 billion, $8.82 billion, and $10.47 billion in 1998, 1999, and 2000.  Productivity Applications and Developer products include desktop applications such as Microsoft Office, server applications such as Microsoft SQL Server and Microsoft Exchange Server, and software developer tools.

In fiscal 2000, revenue growth from Microsoft Office integrated suites, including the Premium, Professional, Small Business, and Standard Editions was very solid.  Revenue from server applications grew strongly compared to fiscal 1999, largely due to the strong success of SQL Server 7.0.  Software developer tools revenue declined, due to increased suite licensing versus stand-alone licenses, and the lack of a release upgrade of the Visual Studio® development system.

In fiscal 1999, revenue growth from Microsoft Office integrated suites was strong.  Revenue from server applications also grew strongly, reflecting, in part, the release of SQL Server 7.0.  The Visual Studio 6.0 development system drove healthy software developer tools revenue growth.  In fiscal 1998, revenue from the various Microsoft Office integrated suites increased strongly, while revenue from stand-alone versions of Microsoft Excel, Microsoft Word, Microsoft Access, and Microsoft PowerPoint® presentation graphics program decreased.



Windows Platforms

Windows Platforms revenue was $6.28 billion, $8.50 billion, and $9.38 billion in 1998, 1999, and 2000.  Windows Platforms products include primarily Windows 98, Windows 2000 Professional, Windows 2000 Server, Windows NT Workstation, and Windows NT Server.

In fiscal 2000, Windows desktop operating systems revenue growth was modest due to soft demand for business PCs during most of the year; a slowdown in shipments in anticipation of the post mid-year availability of Windows 2000 operating systems; and, as expected, a longer business migration cycle for the newest Windows operating system offerings.  In addition, Windows desktop operating systems average earned revenue per licensed operating system decreased compared