Small Builders Feel The Software Love

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Part of that may be due to the rise of Linux and open-source software as competitive options to Windows and other Microsoft products, particularly on the server side. Open-source software is creating more opportunities for custom systems builders, "especially in emerging markets where price points are looked on as more important than brand loyalty," says Mark Longwell, Novell business development director. And that, he says, is putting pressure on Microsoft.

"We do see a strong trend toward Linux in this field," says Jean Shih, president of AMAX Information Technologies, a Fremont, Calif.-based system builder. The company sells Linux- and Windows-based PCs and servers and has relationships with Microsoft and Red Hat, among others. Product marketing specialist James Huang says AMAX is getting better service from all vendors these days, and he attributes at least some of that to the more competitive environment.

While arguing that widespread adoption of Linux just isn't happening, John Ball, general manager of Microsoft's U.S. systems builders partner group, insists competition with Linux will ensure that Microsoft offers custom systems builders the best products and services. "It's a good thing for us," he says. "It keeps us on our toes."

Custom systems builders have also had to stay on their toes in a changing industry. Fewer companies have been building custom PCs in recent years because the market has become so price-competitive, Ball says. But there has been "some positive movement" this year driven by the new Vista and Office 2007 products and a shift in emphasis among custom PC builders toward services and niche markets, he says. Microsoft partners are increasingly expanding into custom servers loaded with such Microsoft products as Windows Small Business Server and Windows Compute Cluster Server.

"If you work closely with Microsoft, they help you back," says David Bolling, president of Northern Computing Technologies.

AMAX has been switching its focus away from PCs to its server business where it expects 30 percent sales growth this year. Servers offer more opportunities to add value through engineering, Shih says.

Microsoft deals directly with about 20 multinational named accounts, including Dell, Hewlett-Packard and Lenovo. While Microsoft also has direct relationships with many of its 20,000 custom systems builder partners, product fulfillment for nearly all of those companies is handled through distributors. Discounts, which Ball won't disclose, are based on sales volumes.

Microsoft has continued to refine the "Buy Local" program it began for systems builders in October 2005 through which Microsoft provides promotional "bonus packs" of products, such as wireless routers, printers and flash drives, that systems builders offer their customers for buying Microsoft products. "It provides a way for the [custom systems builders] to differentiate what they are doing," Ball says. Last year, Microsoft also initiated the System Builder Cooperative Marketing Fund under which systems builders accrue funds, based on their sales volumes, that can be used for marketing and advertising campaigns.

"If you work closely with them, they help you back," says David Bolling, president of Northern Computing Technologies (Nor-Tech), of Microsoft. The Burnsville, Minn., systems builder buys through distributors such as Tech Data, Ingram Micro and D&H, but also has a Microsoft account rep. "They've brought me more business that's helped me grow," he says. Nor-Tech also has relationships with Novell and Red Hat.

And while Microsoft will stop providing brand-name OEMs with Windows XP in January 2008, systems builders will have access to the desktop OS through distributors until January 2009. That's good news for systems builders like Alert Computing in Sedona, Ariz., that don't see a demand for Vista. "XP Pro is pretty stable," says CEO Robert Stewart. While he does load open-source software onto systems he sells to his government/military and SMB clients, Microsoft products comprise the bulk of his business.

NEXT: Novell's efforts to recruit systems builders.