Microsoft Business Solutions
(In millions, except percentages)
Microsoft Business Solutions provides business management software solutions targeted to businesses of varying sizes. The main products consist of enterprise resource planning (“ERP”) solutions, customer relationship management (“CRM”) software, retail solutions, Microsoft Partner Program and related services. Microsoft Business Solutions also includes the Small and Mid-market Solutions & Partners organization, which focuses on sales to customers and partners in the small and mid-market customer segments. Revenue is derived from software and services sales, with software sales representing a large majority of total revenue. Software revenues include both new software licenses and enhancement plans, which provide customers with future software upgrades over the period of the plan. Our solutions are delivered through a worldwide network of channel partners that provide services and local support.
Microsoft Business Solutions revenue increased during the three months ended March 31, 2006 reflecting 28% growth in license revenue, primarily in the Dynamics ERP product lines, and 13% growth in enhancement plan revenue, while services revenue increased 15%. For the first nine months of fiscal year 2006, the 18% revenue increase was primarily due to 20% growth in license revenue and 17% growth in enhancement plan revenue from our Dynamics ERP and CRM solutions, while services revenue increased approximately 7%.
Microsoft Business Solutions operating loss decreased for the three and nine months ended March 31, 2006 reflecting the increase in revenue partially offset by an increase in sales and marketing expense. The increase in sales and marketing expense was primarily due to additional marketing spend as we continue to invest in demand creation and channel development. Headcount-related costs increased 2% and 3%, respectively, in the three and nine months ended March 31, 2006 reflecting both an increase in salaries and benefits for existing headcount and a 10% increase in headcount partially offset by a decrease in stock-based compensation expense.
We expect continued revenue growth through the Microsoft Business Solutions portfolio of business solutions through the end of the year. Continued investments in the next generation of solutions, broader geographical coverage, and plans to facilitate our partners providing customized vertical solutions are expected to result in continued reduction in the Microsoft Business Solutions operating loss in the fourth quarter of fiscal year 2006 and into fiscal year 2007.