<p>Microsoft (MSFT), one of the biggest software companies in the world, makes money primarily via sales of its Microsoft Office productivity suite and Windows operating system. The company has a market capitalization of above $200 billion and generated revenues of approximately $70 billion in 2011. It has a dominant position in almost all of the industries that it operates in. It has 95% market share in the productivity software market, 75% share in the operating system market and approximately 75% share in the server software market. Overall, we think that these three divisions are in a relatively good shape even though they are subject to increasing competition and that their dominance is key for Microsoft since its other products rely on the Windows and Office ecosystem.</p><p>Microsoft Depends on Office's Dominance</p><p>While Microsoft's Windows OS is the product that garners the most attention, Microsoft's biggest revenue driver is Microsoft Office productivity suite. This segment generated approximately $23 billion in revenue in 2011, and we expect this to grow to $26 billion by 2016. The division has the highest margins for Microsoft at around 60%, which is primarily due to its dominant 95% market share in the productivity suite market.</p><p>However, we expect that Microsoft Office's market share will decline to around 90% by the end of our forecast period. We believe that free productivity suites like Google Docs and Open Office are providing an alternative to users who don't need the full power of the Microsoft Office suite. We think that downsides to Microsoft's forecast on the Office suite front are possible especially if a new entrant comes in and provides a better solution for enterprises. But we think that the likelihood of this is low since the Office suite is far ahead of the competition in terms of capabilities and has a sticky user base as users are reluctant to shift to new platforms.</p><p><a href="http://seekingalpha.com/article/1095641-an-overview-of-microsoft-s-key-divisions-and-our-42-valuation">Keep reading...</a></p><p>Read also:</p><p><a href="http://www.nbcnews.com/technology/technolog/microsofts-patch-tuesday-leaves-out-crucial-ie-fix-1B7833219">Microsoft&#039;s Patch Tuesday leaves out crucial IE fix</a> (NBCNews.com)</p><p><a href="http://searchenterprisedesktop.techtarget.com/news/2240175529/IT-shops-may-skip-Office-2013-upgrade-in-favor-of-Office-in-the-cloud">IT shops may skip Office 2013 upgrade in favor of Office in the cloud</a> (TechTarget)</p><p><a href="http://www.h-online.com/news/item/Microsoft-and-Adobe-to-patch-critical-holes-next-Tuesday-1777042.html">Microsoft and Adobe to patch critical holes next Tuesday</a> (The H)</p><p>Explore: <a href="http://news.google.com/news/more?ncl=dCMrGz-7DV1d3EMrOjEH1KVBhg8-M&ned=us">31 additional articles.</a></p>