devices were strong in 1998 and 1999.



Consumer, Commerce, and Other revenue was $1.40 billion, $1.94 billion, and $2.43 billion in 1997, 1998, and 1999.  This category of product revenue includes learning and entertainment software; PC input devices; training and certification fees; consulting; and the online services.  The Company’s Internet services include the MSN portal, MSN access, WebTV®, and vertical properties such as MSN Hotmail Web-based e-mail service, Expedia.comTM travel site, CarPoint car buying site, and MoneyCentral personal finance site.

Learning and entertainment revenue was relatively flat in all three years.  Mouse, gaming device, and keyboard sales increased in 1997 and 1998, but were steady in 1999.  Training and certification fees from system integrators, along with consulting services to large enterprise customers and technology solution providers, increased strongly in all three years.  Revenue from MSN Internet access fees and WebTV services increased due to higher subscriber levels.  Advertising revenue, although relatively small in amount, increased exceptionally well in 1999 for the online portal and vertical properties.



Sales channels

Microsoft distributes its products primarily through OEM licenses, organizational licenses, and retail packaged products.  OEM channel revenue represents license fees from original equipment manufacturers who preinstall Microsoft products, primarily on PCs.  Microsoft has three major geographic sales and marketing organizations: the South Pacific and Americas Region; the Europe, Middle East, and Africa Region; and the Asia Region.  Sales of organizational licenses and packaged products via these channels are primarily to and through distributors and resellers.  

OEM channel revenue was $3.49 billion in 1997, $4.72 billion in 1998, and $6.40 billion in 1999.  The primary source of OEM revenue is the licensing of desktop operating systems, and OEM revenue is highly dependent on PC shipment volume.  Growth was also enhanced by increased penetration of higher-value Windows NT Workstation licenses.

Revenue in the South Pacific and Americas Region was $4.39 billion, $5.57 billion, and $7.25 billion in 1997, 1998, and 1999.  Revenue in the Europe, Middle East, and Africa Region was $2.77 billion, $3.50 billion, and $4.33 billion for the three years.  Growth rates have been lower in Europe than in other geographic areas due to higher existing market shares and a faster shift to licensing programs.  Asia Region revenue was $1.29 billion in 1997, $1.48 billion in 1998, and $1.78 billion in 1999.  After strong growth in prior years, revenue was relatively flat in Japan and Southeast Asia in 1998 and the first half of fiscal 1999 due to economic issues and weak currencies.

The Company’s operating results are affected by foreign exchange rates.  Approximately 32%, 32%, and 29% of the Company’s revenue was collected in foreign currencies during 1997, 1998, and 1999.  Since a portion of local currency revenue is hedged and much of the Company’s international manufacturing costs and operating expenses are also incurred in local currencies, the impact of exchange rates is partially