Di Valerio: Vista Anytime Will Fatten System Profits
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When Microsoft folded system builders into its OEM division in July, Scott Di Valerio became the guy at the top for all custom-system builders, not just the top accounts. The corporate vice president and
former Microsoft controller, who took charge of the OEM division last November, tells
CRN
Senior Writer Paula Rooney that the custom-system channel is stable, is receiving more focus, and should benefit from the Office Ready and Vista Anytime programs, where users can unlock software shipped with systems.
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CRN:
What have you seen in the OEM marketplace since taking over?
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Di VALERIO:
I've been running the OEM division since November of last year, and during that time I came over we did a reorganization very focused on driving engagement and providing support and focus around the system builder channel. It was the way to go, but we did it in a way that focused on local execution. We brought system builders under OEMs, driving their business on a local basis but with global strategy and support.
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CRN:
When you merged system builders into the OEM division, there was some initial speculation pricing would become uniform for top-tier OEMs and system builders. Have you considered that?
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Di VALERIO:
We're always looking at the pricing waterfall to make sure it makes sense and allows for our partners to be successful. No, we don't have plans at this point to change. We do a number of different things with the channel to spark market demand and ensure the pricing structure makes sense.
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CRN:
Microsoft once said it had 350,000 system builders. Are you seeing any drop-off?
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Di VALERIO:
The number you have is in the range of what we're seeing. A lot of system builders are small businesses, and we know small businesses have a high failure rate, and as they do, we see new entrepreneurs come in and bring uniqueness. We haven't seen a significant drop-off in our system builders to date.
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CRN:
Where do you see system builders being successful?
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Di VALERIO:
It's about bringing the right solution to small and midsized businesses. It's a key niche for our system builders and they excel with companies and businesses that don't have IT. Again, each market is different. It depends. It's their ability to bring great solutions vs. competing on price. I haven't seen a huge trend in managed services, but we have been seeing companies focused on verticals deploy in that space and leverage their experience. They are being more successful than others trying to spread across the gamut. That's one trend. But again, it depends on which market you're looking at. We are seeing some strength in verticals—media, health care and, in some cases, education.
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CRN:
Do you have any plans for promoting Vista and Office to system builders?
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Di VALERIO:
Yes. We're doing a tour with Intel, a road show. ... We created training and education and hands-on experience with product. ... And we are having an online program and education for system builders and marketing programs to show how products work. And we'll help them with sales pitches. On top of that, we have a massive marketing engine going that rolls into launch, and air cover and the like around Vista and Office 2007, all of which will be very supportive and helpful to system builders. That is in combination with what we have been doing with solutions competency and local campaigns and co-marketing campaigns.
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CRN:
Some system builders are concerned that Microsoft is shipping all Vista editions on the same CD. They say it will enable customers to bypass channel partners.
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Di VALERIO:
We are moving into this launch with Office 2007 and the Office Ready program. It gives OEMs and system builders two bites at the apple: One-third of small businesses buy new PCs and purchase Office separately. That's a big number. With Office Ready, system builders can sell Office at the time of purchase, which is a great time to sell it. But if they can't do that, we have a 60-day trial and install all the bits, and at the end of 60 days, if the customer upgrades to the new version of Office, [the system builder] can participate by being compensated for that opportunity at a lower cost point to them because they don't have to reach out.
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With Office Ready, we're doing the service and support on Office, where in the past system builders had to take on support calls. We think it's a good thing for system builders. It provides them additional opportunities to monetize their box and their relationship with customers.
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CRN:
And on the Vista front?
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Di VALERIO:
On the Windows Anytime upgrade, it's an opportunity for them to participate in getting commissions for customers that upgrade to a higher version of Vista subsequent to sale. ... You can buy Vista Pro—I should say Vista Business—and if you want to upgrade to Ultimate, you can go through Windows Anytime instead of going to retail. If the system builder is participating in Windows Anytime, they can participate in getting a portion of that uplift at sale. Again, we're looking for ways to help system builders monetize beyond the box and increase revenues.
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CRN:
What margins will be offered to system builders for those upgrades?
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Di VALERIO:
We haven't disclosed those different price points publicly, so I won't comment on that right now.
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CRN:
What will be the key opportunities in
products coming down the pike and to what extent are system builders capitalizing on them?
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Di VALERIO:
SBS
is very, very good and quite successful and the focus of many of our system builders. In many cases, they're the customer's IT staff, and they [deploy] upgrades, connect systems, [and create] opportunities in unified communications. There are lots of opportunities for system builders to be successful.
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CRN:
PC prices keep plummeting. Dell is in trouble. Is the whole PC industry and channel at risk?
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Di VALERIO:
System builders have always been able to be successful playing off unique solutions for customers as opposed to competing on straight price. Over the past 18 to 24 months we've seen a downward bump, but recently the OEMs focused on distinguishing themselves and have been outgrowing the market in the past few months. Those driving low-cost PCs are at or below market. We're starting to see unique solutions and great product designs. Customers are migrating to those and not the lowest-cost PC.
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CRN:
What else do you see happening in the PC market?
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Di VALERIO:
You also have a phenomenon around mobility, and notebooks are growing at a significantly faster pace than PCs in business and in the consumer space. We'll start seeing movement of great product designs at great prices, and Vista and Office 2007 will lead the way because of their uniqueness. Vista scales to the hardware. With Vista, you get great graphics. That software really sings to the consumer visually and on a performance basis. It'll allow our OEM partners to sell more high-definition screens,
and great printers.
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CRN:
Intel and AMD will soon launch quad-core processors. What will that do for Vista and Office 2007?
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Di VALERIO:
I think it's going to be helpful, but I don't know if I'm qualified to comment on that.
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CRN:
What will be the big challenge for system builders in the next year?
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Di VALERIO:
Continuing to bring solutions to the small and midsized marketplace. It's a great partner group we have serving that space, and the biggest challenge is whether the world economy grows at pace. From a launch perspective, we're set to have great success with Vista and Office. The move to mobility in the enterprise and in small and midsized business means notebooks, so will system builders be able to build notebooks and resell notebooks? Combined with Vista Business, and the tablet capabilities built into that, the software will help our system builders because they don't need a unique
to sell that capability.
CRN: What is Microsoft doing to help ease the transition to Vista in the custom- system channel?
Di VALERIO: Well, I think what we're doing surrounds getting the system builder channel ready for launch. It's education, road shows, working with Intel, online training and the ability to let them know what's happening and educating the market and bringing in marketing programs on top of that. A number of SKUs are really designed to allow system builders to take advantage of that like they have not been able to in the past.
CRN: Such as?
Di VALERIO: If you look at Office Home and Student, that product was not available in the system builder channel and it will be with the Office 2007 launch. That's a big opportunity for them, and Windows Anytime uptime upgrade and Office upgrade readiness gives them the ability to get a second bite at the apple. Again, we're working up and down the channel, and combined with that, we're structured for successful execution with sales teams working hand in hand with system builders.
CRN: Reports have surfaced that Microsoft will offer a rebate or guarantee for Vista so it's easier for system builders to sell systems during holiday season.
Di VALERIO: We are not commenting on that right now and not commenting on tech guarantee programs.
CRN: But will there be one?
Di VALERIO: We're not commenting.
[Editor's Note: CRN has since learned that Microsoft's planned Vista Express Upgrade coupon program will begin Oct. 26 and run through March 15. It entitles buyers of Windows XP PCs during the holiday season to a free upgrade of Vista when it ships, slated for first-quarter 2007.]
CRN: The channel has had a hard time in the whitebook market. Why is that and what can they do to gain an edge there?
Di VALERIO: Well, notebook technology is more complexity in the box and price in the box, so I think they can compete successfully in the overall marketplace by distinguishing solutions. They have to build great solutions and [provide] consulting to customers.
CRN: What about the Windows Media Center? System builders are disappointed in results and ask why Microsoft isn't investing more to jump-start sales.
Di VALERIO: We sold over 12 million Media Centers in the last 12 months, which is double the number of iMacs and Apple sales. We have continued to focus, and drove Media Center PC sales to over 16 million since the introduction of that product. We're seeing great traction in that space. Last quarter, over 25 percent of PCs sold had Media Center on them.
CRN: But system builders say the vast majority of Windows Media Center sales are moving though OEMs who don't optimize for all the unique features of that version of XP.
Di VALERIO: There are Media Centers sold without the TV tuner and the like. As the technology gets better understood and easier to navigate, though, we're seeing more
CRN: What's the plan around the Vista edition?
Di VALERIO: As we move into Windows Vista, Media Center capabilities are available in Home Premium SKUs and Business and Ultimate, and we're focusing major marketing dollars around Windows Vista Home Premium and Business and Ultimate SKUs.
CRN: Others say the emergence of media services from cable companies is closing Microsoft's window of opportunity.
Di VALERIO: We have competitors and partners all over the globe and offerings are similar to what we have. The Media Center PC experience is the best overall. ... We're in OEM segments spending a good portion of marketing dollars around premium SKUs, including Windows XP Media Center and Windows Vista Home Premium.
CRN: Storage is becoming an important category for custom-system builders. Does Microsoft have any plans to make Windows Storage Server more available to system builders?
Di VALERIO: I don't believe we have any specific plans at this point that I'm aware of. We're seeing good growth across the business and in specialized servers and the like across OEM segments. I'd have to go back and look at the space.
CRN: How well is Microsoft's system builder channel doing and with what products?
Di VALERIO: SBS and SharePoint server and the like, we're pleased with that. We're seeing that the overall market is growing faster than the system builder market, but I don't see any big change, and they're growing at the same pace as last year. The overall PC market grows between 9 [percent] and 10 percent, and the system builder [channel] is growing a little slower than that.