Microsoft Sidesteps Retailers With Online Software Store

Microsoft Corp. has embraced a more direct model to sell software to consumers from its online store.

The site, shop.microsoft.com, which was launched last spring, has quietly scrapped its method of direct product order referrals to the four retailers on board,CDW, CompUSA, Insight Direct and Beyond.com Corp., in late August. Instead it steers the consumer shopping cart directly to Microsoft's online cashiers.

However, Microsoft has no plans to initiate a similar change for its Microsoft Licensing Online site, which steers small businesses directly to VAR Web sites such as Software Spectrum Inc. to buy licenses, executives said.

"Microsoft has no plans for [direct] full-volume licensing for small to [midsize] businesses," said Tracey Maroc, group manager for open licensing and online marketing at Microsoft, who said that 5,210 qualified leads have been passed to resellers since the site launched in mid-July.

"We know customers' primary relationship exists with the broad reseller channel, and there aren't any plans to digress from our channel-supportive online strategy," Maroc said.

Running the online licensing site entails "many challenges," but no major problems,technical or marketing,have executives thinking about pulling the plug, Maroc said.

The move to change shop.microsoft.com's referral system, which comes less than a year after its E-doors opened, confirms retailers' initial fears that Microsoft eventually would embrace a direct relationship with online customers. The new referral tool will be operational in two to four months. The redesign is for technical and marketing reasons, not to cut retailers out of the loop, executives said.

"Order referral is going away," said Ken Schneider, a Microsoft marketing manager, noting the software giant instead will offer a reseller referral tool on the main page of shop.microsoft.com that will allow consumers to surf for better prices on retail Web sites on their own. "It was costly for us to support [the program]," he said.

With the direct-sales model, Microsoft now will fulfill all of its online orders through an unnamed fulfillment house. Customers always had the option to buy direct from Microsoft, but the checkout screen on shop.microsoft.com previously guided them directly to the product ordering screens of its four participating retailers.

The retailer referral system did not prove to be a good consumer experience, said executives at the Redmond-based software company. "Highly complex" user interfaces and architectures that were required for retailers to process transactions contributed to the decision to scrap the model, they said.

Microsoft's top retail executive downplayed the decision, saying the site currently does only "a very, very low volume" of business. "We just want to be where people want to shop," said Steve Schiro, vice president of sales for Microsoft's Home & Retail division. "But we'll be the high-priced model. It's not a price leader. There's a multichannel world."

One channel observer said resellers should not worry about Microsoft going direct with licensing. "Shop.microsoft.com has not been successful because people want to buy while they are there, not do a double step [to retail sites]," said Seymour Merrin, president of Merrin Information Systems, Santa Fe, N.M. "But Microsoft doesn't want to deal with licensing directly. It's an entirely different situation and customer base," he said.

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