Revenue increased $294 million or 1%, driven by growth in Productivity and Business Processes and Intelligent Cloud, offset in part by lower revenue from More Personal Computing and an increase in the net revenue deferral from Windows 10. Windows 10 revenue is primarily recognized at the time of billing in the More Personal Computing segment, and the deferral and subsequent recognition of revenue is reflected in Corporate and Other. Productivity and Business Processes revenue increased, driven by higher revenue from Office 365 and the acquisition of LinkedIn. Intelligent Cloud revenue increased, primarily due to higher revenue from server products and cloud services. More Personal Computing revenue decreased, mainly due to lower revenue from Devices and Gaming, offset in part by higher revenue from Windows and Search advertising. Revenue included an unfavorable foreign currency impact of 2%.
Operating income increased $151 million or 3%, primarily due to higher gross margin, offset in part by an increase in operating expenses. Operating income included an unfavorable foreign currency impact of 4%. Gross margin increased $265 million or 2%, driven by higher revenue. Gross margin included an unfavorable foreign currency impact of 2%.
Key changes in expenses were:
• Cost of revenue increased slightly, mainly due to growth in our commercial cloud, the acquisition of LinkedIn, and higher Search advertising traffic acquisition costs, offset in part by a reduction in phone sales.
• Research and development expenses increased $162 million or 6%, primarily due to increased strategic investments to drive cloud engineering and LinkedIn expenses, offset in part by a reduction in phone expenses.
• Sales and marketing expenses increased $111 million or 3%, primarily due to LinkedIn expenses and increased investments to drive sales capacity in our commercial cloud, offset in part by a reduction in phone expenses.
• General and administrative expenses decreased $159 million or 15%, primarily due to the benefit of a legal settlement in the current year, lower employee-related expenses, and a reduction in phone expenses, offset in part by LinkedIn expenses.