India continues to be a challenge for Microsoft, as it is still unable to crack open the local market.

There were changes in the company's strategy: it has migrated to what it calls a solutions-centric approach, to get higher growth and better handle the continuing high levels of piracy. As a result, there was much market segmentation with the introduction of products like the Office Hindi edition and the Office Student&Teacher edition targeted at specific segments. To tap demand from SMBs, Microsoft bundled together three of its core products-Windows, Exchange and ISA Servers-and sold them as the Small Business Server, aggressively priced. The fiscal also saw the launch of new versions of Windows Server and Exchange Server.

Drivers were IT/BPO services, BFSI and Government verticals. In the enterprise business, Microsoft's growth was more or less in sync with the server hardware shipments. Its core, in the form of Windows and Exchange Server, continued to do well. A growing EDI market ensured that the BizTalk Server and the newly-introduced ISA Server also did well.

Microsoft's bete noire-Linux-continued to grow more and more formidable. All major PC vendors started shipping desktops with Linux pre-installed. This also lead to surrogate piracy, with many of these Linux PCs reportedly being loaded with pirated versions of Windows. To combat this new threat, the company shed some of its exclusivity and got involved with channel partners to train and motivate them. On the enterprise front, how seriously the company took the Linux menace could be gauged from the massive advertising campaign it took out to highlight the benefits of using its software as against using open source software (read Linux).

September 2003 also saw the company announcing Project Bhasha, an initiative to promote local language computing, along with plans to make its core offerings available in 14 Indian languages (Office Hindi was launched in February 2004). After that there has not been much action, but projects are on with governments in Orissa, Madhya Pradesh, Uttaranchal and Andhra Pradesh.