Category: Blog  ·  Originally posted August 16, 2012  ·  Last updated July 31, 2013

Where does Microsoft make money? (Updated 2012)

THIS INFORMATION IS OUTDATED. Click here to see the updated 2013 report.

As in past years, all information in this report is taken from Microsoft’s publicly available 2012 10-K filing. Numbers may vary from past reports. When Microsoft moves products between revenue categories, they retroactively adjust the totals for past years so that year-to-year comparisons are accurate. This article uses 2010 and 2011 values as calculated in the 2012 report. All values are in USD.

If you’ve read my past reports, feel free to skip down to the charts. If this is your first time here, let me provide a quick explanation of how Microsoft breaks down its earnings.

Microsoft Total Revenue and Operating Income (June 2011 – June 2012)

Total Revenue: $73,723,000,000
Operating Income: $21,763,000,000

Total Revenue is the total amount of money Microsoft takes in from normal business operations.

Operating Income is calculated as (Operating Revenue – Operating Expenses). In other words, “Operating Income” is the profit made from normal business operations. (A more formal definition is available from Investopedia: “Operating income would not include items such as investments in other firms, taxes or interest expenses. In addition, nonrecurring items such as cash paid for a lawsuit settlement are often not included. Operating income is required to calculate operating margin, which describes a company’s operating efficiency.”)

Operating Income is particularly important when looking at a company like Microsoft. Certain Microsoft divisions take in a great deal of money, but they also require much higher costs to operate. Therefore, it is important to look at not just how much money a certain division brings in – but at how much it costs to operate that division.

Microsoft total revenue and operating income, 2010 - 2012

Long story short: Microsoft’s 2012 revenues were up over 2011, but operating income fell.

Microsoft Revenue and Operating Income by Division (June 2011 – 2012)

Microsoft products (and earnings) are divided into five divisions: Windows & Windows Live, Microsoft Business, Server and Tools, Entertainment and Devices, and Online Services. The types of products and services provided by each segment are summarized below:

  • Windows and Windows Live – Windows operating system, Windows Live applications and web services, Microsoft PC hardware products.
  • Microsoft Business – Microsoft Office (including Office Web Apps and Office 365), Microsoft Exchange, Microsoft SharePoint, Microsoft Lync, Microsoft Office Project and Office Visio, and Microsoft Dynamics ERP and CRM.
  • Server and Tools – Windows Server operating system, Windows Azure, Microsoft SQL Server, SQL Azure, Visual Studio, Silverlight, Windows Intune, Windows Embedded, System Center products, Microsoft Consulting Services, and Premier product support services.
  • Entertainment and Devices – Xbox 360 console, games, and accessories (e.g. Kinect), Xbox LIVE, Windows Phone. In 2012, Microsoft also added Skype to this division.
  • Online Services – Bing, Microsoft adCenter, MSN, and Atlas online tools for advertisers.

(Note: these divisions are pretty much identical to 2011, with the exception of Skype being added to Entertainment and Devices.)

Here are the 2011-2012 revenue and operating income values for each division, in USD. Note that the number in parentheses is the percentage change between 2011 and 2012.

Windows and Windows Live
Revenue: $18,373,000,000 (-3%)
Operating Income: $11,460,000,000 (-6%)

Business (Office, Exchange, SharePoint)
Revenue: $23,991,000,000 (+7%)
Operating income: $15,719,000,000 (+7%)

Server and Tools (Windows Server, Microsoft SQL, Visual Studio)
Revenue: $18,686,000,000 (+12%)
Operating Income: $7,431,000,000 (+18%)

Entertainment and Devices (XBox 360/LIVE, Windows Phone)
Revenue: $9,593,000,000 (+8%)
Operating income: $364,000,000 (-71%)

Online Services (Bing, MSN, Hotmail)
Revenue: $2,867,000,000 (+10%)
Operating income: $-8,121,000,000 (*)

(* – Microsoft marks the large difference between Online Services’ 2011 and 2012 operating income as “not meaningful.” The explanation: “OSD’s fiscal year 2012 operating loss reflects a goodwill impairment charge of $6.2 billion, which we recorded as a result of our annual goodwill impairment test in the fourth quarter. The non-cash, non-tax-deductible charge related mainly to goodwill acquired through our 2007 acquisition of aQuantive, Inc.”)


Total Revenue Charts – 2012

Microsoft revenue by division 2012 (raw values)

Microsoft total revenue by division in 2012. (Amounts in millions USD.)

 

Microsoft revenue by division 2012 (percentages)

Microsoft total revenue by division for 2012, as percentages. Note that in terms of pure revenue, Microsoft Business outperforms every other division. This chart is also nice for showing just how little XBox, Bing and – at present – Windows Phone matter to Microsoft’s current cash flow. That may change in the future, but for now it is all about Office, Windows, and Server/Tools.


Operating Income Chart – 2012

Microsoft operating income by division 2012

Microsoft operating income, by division, for 2012. (Amounts in millions USD.) Note that Online Services represents an $8.1 billion dollar LOSS. Microsoft Business is far and away the most profitable division, while Server and Tools – which brought in as much revenue as the Windows division in 2012 – represents significantly less profit. Again, note how insignificant XBox and Windows Phone are from a profit standpoint.


Year-over-year comparisons (2010-2012)

Microsoft revenue by division (2010-2012)

Microsoft revenue by division for the years 2010, 2011, and 2012. Overall revenue continues to trend upward, despite Windows sales falling for two years straight. It will be very interesting to see how the October launch of Windows 8 affects next year’s numbers.

 

Microsoft operating income by division (2010-2012)

Microsoft operating income by division for the years 2010, 2011, and 2012. Unlike revenue, operating income varies dramatically from year to year. Microsoft Business dominated profits in 2012, while Online Services continued to hemorrhage a frightening amount of money. Entertainment and Devices also took a huge hit from 2011, so don’t be surprised if Microsoft becomes increasingly aggressive about improving profitability of XBox and Windows Phone in 2012.

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Discussion (7 comments)

  1. This is great information. Good work. Don’t suppose I could convince you to do a similar analysis for Google and Facebook? :)

    By Tim | September 28, 2012, 10:13 pm | Reply to this comment
    • Hi Tim. I’ve actually looked at doing this for Google, Facebook, Apple, and Sony, but only Microsoft provides such a detailed category breakdown of their earnings.

      That said, Google and Facebook are pretty easy – all their earnings come from a single source: advertising revenue. :)

      By Tanner | October 1, 2012, 7:11 am | Reply to this comment
  2. This was very interesting. Would you be able to do one for Amazon. I’m from Seattle where we have Boeing, Costco, Expedia, Microsoft and Amazon. Over the past 3-4 years…..Amazon has been killing it…..honestly they seem to be the most intriguing company to me!

    By Mason | January 5, 2013, 10:17 pm | Reply to this comment
    • Hi Mason,

      I’ll take a look at Amazon’s earnings statements. If they provide a categorical breakdown like Microsoft, I’ll put together an article for them. Thanks for the suggestion.

      By Tanner | January 8, 2013, 8:43 am | Reply to this comment
  3. [...] year, Microsoft made just $18 billion (24 percent) of its $74 billion in revenue from the sale of Windows operating systems. Its real moneymakers in the corporate world are not operating systems for desktops but [...]

    By Windows 8: Design over Usability – MIT Technology Review | February 20, 2013, 12:02 am | Reply to this comment
  4. If u total up the segmental revenues of all the segments they don’t match with the total revenue, even if the annual report by Microsoft they don’t match up. can some one explain me why this happens? i mean there is a difference in the totals.

    By akash raval | October 19, 2013, 4:09 am | Reply to this comment
    • Hi Akash. There are some expenses that aren’t product-related – such as Administrative expenses – which I don’t include in these product charts. If you follow the link to the 10-k filing, you can read more about those peripheral categories.

      By Tanner | October 19, 2013, 6:29 am | Reply to this comment

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