Revenue increased, primarily due to revenue from new products and services, including Windows 8, Surface, and the new Office, offset in part by the impact on revenue of a decline in the x86 PC market, as well as due to higher revenue from Server and Tools and Entertainment and Devices products and services. During the three months ended March 31, 2013, we recognized a net $1.1 billion of revenue related to the Windows Upgrade Offer, $380 million of revenue related to the Video Game Deferral, and a net $193 million of revenue related to the Office Deferral.
Operating income increased, reflecting revenue growth, offset in part by higher cost of revenue and operating expenses. Key changes in cost of revenue and operating expenses were:
• Cost of revenue increased $835 million or 21%, primarily reflecting product costs associated with Surface and Windows 8, increased royalties on Xbox LIVE content and video games, and higher headcount-related expenses, offset in part by lower traffic acquisition costs.
• General and administrative expenses increased $506 million or 44%, due to higher legal charges.
• Sales and marketing expenses increased $380 million or 11%, primarily reflecting advertising of Windows 8 and Surface.