Microsoft, Dell Launch Joint Promotion For Small Business Server, Windows

SMB promotional mailing met with mixed reaction in the channel

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Microsoft launched a direct-mail campaign with Dell Computer this month to drive sales of Microsoft Small Business Server 2000 and Windows servers, upsetting some solution providers.

The mailing, printed on Microsoft letterhead and dated in May, promotes a discount worth about $160 on Dell servers preloaded with Small Business Server 2000.

The offer, subsidized by both Microsoft and Dell and due to expire on June 20, includes a 5 percent price cut on Dell servers and a $100 discount on Small Business Server 2000, which is normally priced at $1,300. It also offers a $99 Software Assurance deal, which would enable a customer to upgrade to the forthcoming Small Business Server 2003, code-named Bobcat and due for release this fall, at a minor cost.

"At first, I was somewhat outraged," said Jeff Sherman, CEO of Warever Computing, a solution provider in Los Angeles. "But the question is whether it is Dell doing the price reductions or whether it is Microsoft doing the price reductions. It also depends on who sent out the marketing piece. If it looks like a Microsoft piece that went to Microsoft customers, then Dell is getting an advantage not available to other resellers. But Dell, of course, is always free to drop their prices as a promotion [to its customers]."

The mailing also indicates the hardware discount applies to servers preloaded with any versions of the Windows server.

"For a limited time only, save 5 percent on a Dell server preloaded with any Microsoft network operating system," the mailing stated "And, when you choose to preload your new server with Small Business Server 2000, save an additional $100."

Despite repeated requests, neither Dell nor Microsoft would discuss the mailing or the list of recipients who received it. One source who furnished a copy of the mailing to CRN said he is not clear if he received the mailing as a Dell customer or as a Microsoft partner.

Microsoft issued a statement to CRN noting that it offers channel partners the same deal on Software Assurance for Small Business Server 2000 and has another $500 Small Business Server rebate program and similar marketing materials partners can use.

The Redmond, Wash., software giant said the promotion with Dell should not be viewed as unfriendly to the channel. However, Microsoft declined to specify whether the letter was sent to Dell customers, Microsoft customers or both.

"An incentive to Dell doesn't mean that Microsoft is encroaching on the partner business," said Guy Haycock, product manager of the Windows Server Division, in a statement released to CRN. "Microsoft offered the Software Assurance promotion and materials to all our partners. In this case Dell offered the 5 percent discount, out of Dell's pocket, in addition to the Software Assurance promo from Microsoft."

The move irked some system builders, white-box makers and resellers, many of the same channel partners that protested Microsoft's direct-mail campaign with CDW last year.

The ASCII Group, a Washington-based organization representing resellers, did not respond to press calls. However, one member said the deal is unfair to Microsoft's other OEM partners and their resellers.

"Microsoft pulled this crap before. The group I belong to--The ASCII Group--made a big stink about it," said one solution provider who declined to be named, alluding to a controversial promotion mailing Microsoft and CDW sent out last year. "Giving one OEM a deal that is not available to others is completely unfair. Microsoft is basically telling end users to buy from Dell and to not buy from anyone else--the independent reseller, HP/Compaq, Gateway, IBM, Acer, Sony, etc. Where is this customer list coming from? My guess is that Microsoft is taking their customer list--the customers that we resellers have fought hard to sell to--and undercutting us."

Nevertheless, many see the promotion as a wise move for Microsoft in the small- and midsize-business market, where it will face competition from Linux.

One large systems integrator assessed Microsoft's promotion as "anti-Linux channel management."

However, some fear that HP and IBM channel partners as well as system builders will be hurt by the promotion, which runs during Microsoft's final, and pivotal, fourth fiscal quarter.

"I think the largest group to suffer from this promotion is the Hewlett-Packard channel. This is emotionally a blow even if sales are not gigantic. The HP channel wars daily with Dell--the last thing it needs to see is this sort of approach, which pushes them to the side where Microsoft is concerned," said one IT chief. "If Dell gets in the door with this package, it will be used to leverage sales of peripherals, both hardware and software."

Others, however, say the Microsoft-Dell mailing signifies the ongoing evolution of the channel from making margins on products to a services-based model-- especially in the small- and midsize-business space.

"It may be a tough pill to swallow, but Microsoft has always been among the best channel partners and when they make a move to promote a product with a large organization like Dell, which is very channel unfriendly, it's a reflection of the reality that partners making a living riding off the coattails of Microsoft and not adding value need to get shaken out," said Eliot Sennet, president of ESI Enterprises, Newton, Mass., a solution provider that serves small businesses.

"This recent promotional mailing for the Microsoft-Dell SBS deal is another example of vendors moving toward direct customer relationships," said Anthony Harbour, president and CEO of Harbour and Associates, an IT and security consultant in Richmond, Va. "It reinforces that I made the right decision to concentrate on consulting services and derive only a fraction of our revenue stream from hardware and software sales."

One solution provider that sells Dell servers said minor discounts such as the $160 price cut matter less in the small-business segment since channel partners make very little margins on hardware or software sales in this space. He said if the promotion helps Microsoft sell more Small Business Server 2000, or Windows, it will help his business.

"This doesn't upset the channel. The box is under $1,000 anyway, so it doesn't make or break the deal," said Roger Otterson, president of Qualitec, a solution provider in San Diego, whose profit margin is now based 90 percent on services and 10 percent on product sales. "I'm not concerned about Dell selling servers. I'm only concerned if Dell tells customers they'll install lit, configure it and support their network from now on."

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