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7/28/2005
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Microsoft's Growth Strategy Includes Premium-Priced Windows And Office Versions

The company's new triumvirate -- Gates, Ballmer, Ozzie -- lays out a growth strategy that also includes making more acquisitions to enter new markets, and selling more services

Microsoft plans to boost revenue growth by increasing its pace of acquisitions, developing premium priced versions of Office and Windows, and selling services for managing documents and E-mail, top executives at the software company told Wall Street analysts Thursday.

During presentations at an annual meeting of financial analysts in Redmond, Wash., Microsoft chairman Bill Gates, CEO Steve Ballmer, and chief technology officer Ray Ozzie said the opportunity for Microsoft to grow lies in investing in new businesses such as computing-capable cell phones, Internet television, and online software. Microsoft's revenue for its 2005 fiscal year grew 9%, to $39.8 billion, the company said last week. Its revenue in fiscal 2001 was just $25 billion. And Ballmer noted this obscure financial statistic: if you look at the operating income generated each yaer by the 25 largest technology companies, Microsoft has increased its share of that total since the beginning of the decade.

But taking bets on new technology is key to keeping up the pace, he said. "If we are to grow, we must innovate broadly," Ballmer said. "That really is the formula at Microsoft--growth beyond our anchor businesses."

Software delivered over the Internet is a big part of the company's plans for growth. "The PC and Windows today remain at the centers of people's technology," he said. But new computing platforms "are growing even faster We live in a world in which we deliver bits; we're moving to a world in which we deliver bits and services across the Internet."

Windows Vista, the operating system that had been codenamed Longhorn that Microsoft plans to release next year, will be a bridge to new types of software. "Some people will ask if Windows Vista is the end of the last generation of software. I think of it as the beginning of the next era of software from Microsoft," said Ballmer. It also exposes Microsoft to new competitors such as Google and Yahoo.

Microsoft also plans on releasing higher-priced, "premium" editions of its Office productivity suite and Windows client access licenses, said Ballmer. Group VP Jeff Raikes said the company plans to discuss more details of that plan at its Professional Developers Conference in Los Angeles in September.

Microsoft has also increased its pace of acquisitions, Ballmer said, and will buy companies in the $100 million to $500 million range to add technology and engineering talent to its research and development efforts.

Gates, who appeared on stage with CTO Ozzie, said software delivered as a service will take various forms. Microsoft wants to make it possible for businesses to choose whether they buy E-mail software as a server they install, or a service they lease. Microsoft earlier this month acquired FrontBridge Technologies, which indexes and backs up companies' E-mails for compliance with federal regulations. The company plans to create a "cloud storage" service that can route E-mail messages or favorite Web destinations to a user's various computing devices.

According to Ozzie, Microsoft also plans to develop services for managing documents as they move through a company's work flow, and for making sure archiving policies comply with government regulations. Typically, only large companies can afford to invest in those kind of processes and tools. "Those represent opportunities to bring the same kind of thing to organizations" with fewer resources, Ozzie said.

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