Editor’s note: Alan B. Krans is a senior analyst with Technology Business Research. Microsoft (Nasdaq: MSFT reported Thursday net income for the latest quarter fell slightly from a year ago, but it beat Wall Street’s expectations despite the weak personal computer market. (Read earnings report here.

HAMPTON, N.H. – TBR’s analysis of Microsoft’s performance by key segments:

Microsoft tightens its grip on desktop software

The desktop software market is Microsoft’s to lose, and in 4Q10 the company tightened its grip on these critical markets. Microsoft Windows and Windows Live division maintained pace with the overall PC shipment growth during the quarter, even as the threats of netbooks, tablets, and mobile devices lurk in the shadows. In the Microsoft Business Division, which is home to the Office franchise, revenue increased by 24% year-to-year, as Microsoft benefitted both from the fortification of core Office sales and through growth of new offerings such as Lync.

Even as cloud becomes increasingly pronounced in Microsoft’s messaging to customers, the company is not taking its foot off the accelerator of core Windows and Office products, maintaining a long-held presence the drives large streams of revenue and profit.

Microsoft launches cloud-based CRM to increase the pressure on Salesforce.com and Oracle’s CRM

Following the early warm reception to Office 365, as illustrated by the oversubscribed beta, Microsoft recently announced that Microsoft Dynamics CRM Online, its cloud-based CRM offering, will launch globally in 40 countries. Dynamics CRM Online has been available to the US since 2008, but with Salesforce.com generating 30% of its revenue abroad, and Oracle tapping into the global CRM market as well, Microsoft needed to open the solution up geographically. Microsoft has a large, established, international market it plans on further monetizing through its growing number of cloud solutions.

Microsoft differentiates cloud offering from competitors in two ways; pricing and integration

Microsoft is selling Dynamics CRM Online for $34 per user per month and offering up to $200 per user to customers that migrate to Dynamics from other platforms, a direct attack on widely adopted Salesforce.com and Oracle. Salesforce.com’s Professional Edition starts at $125 per user per month and Oracle’s CRM On Demand starts at $75 per user per month. Further, Microsoft’s cloud-based CRM solution integrates seamlessly with both on-premise and cloud deployments of Outlook, Exchange, SharePoint, Office, Lync and Windows Azure, leveraging the large customer base that is familiar and standardized on these offerings. This strategy not only differentiates Microsoft’s CRM Online offering, it further fortifies the installed base for Microsoft’s existing on premise software offerings.

Microsoft’s revamped Partner Network is crucial to revenue growth

Many software companies, including IBM, HP, Dell, Oracle and Symantec, all focused on enhancing their partner networks and increasing collaboration to maximize channel value generation. In 4Q10, Microsoft increased training, resources and support, helping partners increase success in the market. For cloud partners, 4Q10 saw new features including its Gold Competency award for the highest-skilled partners addressing the most specific customer needs.

Key to future growth, Microsoft updated its partner network to further address the cloud. Microsoft’s partner network grants partners early access to new cloud technologies, deepening the bond between vendor, partner and customer. Increased communication takes place on dedicated Facebook, Twitter and LinkedIn pages along with Microsoft’s Partner Network Community, similar to Salesforce.com’s Chatter functionality, to share information and trouble shoot.

Microsoft is moving software closer to hardware

Microsoft is broadening its deployment models, positioning it for future growth by diversifying revenue and offering customers more options. Previously, Microsoft primarily delivered software through hardware partners to customers for traditional delivery. Due to changing market dynamics both on the customer and vendor side, Microsoft is diversifying its delivery models to promote tighter integration of software and hardware. With both cloud and appliance delivery, the lines between hardware and software are obscured, with the customer value proposition focusing more on delivering a solution versus IT hardware and software.

In 2010, Microsoft entered the appliance market when it introduced Azure platform appliance, a turnkey cloud platform enabling customers to deploy in their own datacenters. Microsoft extended its appliance strategy in 4Q10, announcing a partnership with HP to deliver the HP Database Consolidation Appliance. This appliance consolidates hundreds of databases into a single, virtual environment and provides users with a private cloud database solution offering self-service, on-demand scalability and dynamic elasticity. For more traditional customers, additional control is offered through an on-premise deployment.

Microsoft’s move into the appliance space broadens the IT arenas in which it competes, and puts it in competition with vendors like IBM, Oracle, HP, Symantec and EMC. As customers increasingly seek end-to-end business solutions, appliances and cloud adoption will increase, putting Microsoft in new competitive engagements with a variety of IT vendors across the hardware and software segments.

Get the latest news alerts: Follow LTW at Twitter.