Where does Microsoft make its money?

THIS INFORMATION IS OUTDATED. Click here to see the updated 2012 report.

Ever wondered which of Microsoft’s product divisions are most profitable?  I have, so today I did some research. Here’s what I found.

What follows are some graphs and explanations of Microsoft’s 2008 revenue.  All information is provided courtesy of Microsoft’s annual 10-K filing (available for download here).

Total Revenue and Operating Income (2008)

Microsoft’s 2008 Total Revenue: $60,420,000,000
Microsoft’s 2008 Operating Income: $22,492,000,000

For those who don’t know, Operating Income = 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.”)

It is important to note both revenue and operating income, because certain Microsoft divisions make a great deal of money but are not nearly as profitable/lucrative as other divisions.

Revenue and Operating Income by Division (2008)

Microsoft’s products are divided into five divisions: Client, Server and Tools, Online Services, Microsoft Business, and Entertainment and Devices.  The types of products and services provided by each segment are summarized below:

Client – Windows Vista, including Home, Home Premium, Ultimate, Business, Enterprise and Starter Edition; Windows XP Professional and Home; Media Center Edition; Tablet PC Edition; and other standard Windows operating systems.

Server and Tools – Windows Server operating system; Microsoft SQL Server; Microsoft Enterprise Services; product support services; Visual Studio; System Center products; Forefront security products; Biz Talk Server; MSDN; and other products and services.

Online Services Business – Live Search; MSN; MapPoint; MSN Internet Access; MSN Premium Web Services (consisting of MSN Internet Software Subscription, MSN Hotmail Plus, and MSN Software Services); Windows Live; MSN Mobile Services; AvenueA Razorfish media agency services; Atlas online tools for advertisers; and the Drive PM ad network for publishers.

Microsoft Business Division – Microsoft Office; Microsoft Project; Microsoft Visio; Microsoft Office SharePoint Server; Microsoft PerformancePoint; Microsoft Office Live; FAST ESP; Microsoft Exchange Server; Microsoft Exchange Hosted Services; Microsoft Office Live Meeting; Microsoft Office Communication Server; Microsoft Office Communicator; Microsoft Tellme Service, Microsoft Dynamics AX; Microsoft Dynamics CRM; Microsoft Dynamics CRM Online; Microsoft Dynamics GP; Microsoft Dynamics NAV; Microsoft Dynamics SL; Microsoft Dynamics Retail Management System; Microsoft Partner Program; and Microsoft Office Accounting.

Entertainment and Devices Division – Xbox 360 console and games; Xbox Live; Zune; Mediaroom; numerous consumer software and hardware products (such as mice and keyboards); Windows Mobile software and services platform; Windows Embedded device operating system; Windows Automotive; and Surface computing platform.

The 2008 Revenue and Operating Income for each division, in USD, is as follows:

Client (Windows Operating System)
Revenue: $16,865,000,000
Operating Income: $13,052,000,000

Server and Tools (Windows Server, Microsoft SQL Server, Visual Studio)
Revenue: $13,170,000,000
Operating Income: $4,593,000,000

Online Services (Live Search, MSN, Hotmail)
Revenue: $3,214,000,000
Operating income: $-1,233,000,000

Business Division (Office, Project, Visio, Exchange Server, Dynamics)
Revenue: $18,932,000,000
Operating income: $12,358,000,000

Entertainment and Devices (XBox, Zune, Windows Mobile)
Revenue: $8,140,000,000
Operating income: $426,000,000


Interesting, isn’t it? Office generates more money than Windows, but Windows is slightly more profitable.

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