Partners Downplay Microsoft Download Programs For Vista, Office '07

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The news, announced Wednesday evening, generated little initial concern from solution providers and system builders, which are preparing for general availability of those products on Jan. 30.

"It doesn't surprise or concern me. I am assuming this will be retail [stock-keeping unit], which system builders rarely sell," said Steve Bohman, vice president of operations at Columbus Micro Systems, a Columbus, Ohio-based system builder. "Windows Marketplace will compete with the big-box retailers."

Microsoft partners said the 2.5-Gbyte Vista code takes up to four hours to download over a high-speed Internet line and is aimed at consumers, not businesses. And relatively few users have enough horsepower or graphics capabilities on their existing PCs to support Vista or Office 2007, they said.

The policy signals Microsoft's full transition to electronic software distribution (ESD) methods. Though that currently means little to partners and system builders, which provide Windows and Office to businesses via licenses or through new PC purchases, some worry this direct relationship will eventually erode partners' influence and relationships with their customers.

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Microsoft said most versions of Vista and Office 2007 would be available via Windows Marketplace, including the non-enterprise business versions of those products. The list includes Windows Vista Business, Windows Vista Home Basic, Windows Vista Home Premium, Windows Vista Ultimate, Microsoft Office Home and Student 2007, and Microsoft Office Professional 2007.

Windows Marketplace gives Microsoft a direct online relationship with customers and an opportunity to offer incentives to customers to buy and access solutions directly -- and bypass channel partners, according to some solution providers. Partners expressed outrage when Microsoft announced last year that it would allow customers, including small and midsize businesses, to easily upgrade to higher-end versions of Vista and Office by purchasing license keys online from Microsoft. The Windows Anytime program, and now Windows Marketplace, will erode the role of the channel over time, industry observers said.

Microsoft executives declined to be interviewed for this article. A company spokeswoman, however, issued a statement to CRN insisting the program won't impact channel partners. And Microsoft said it will offer Vista and Office 2007 at the suggested retail price. "Our goal is not to compete with our channel partners. Rather, we are offering a service to customers who want to obtain the software directly from Microsoft. We have been offering Microsoft products direct through the Product Information Center for many years with no visible impact on the channel," the statement said. "In addition, we plan to sell at list price, while channel partners are free to set end-user pricing as they see fit."

But Microsoft has placed restrictions on which partners can participate in Windows Anytime and on Wednesday announced Windows Vista discounts for customers who buy multiple copies of Vista online. For example, only select OEMs and retail partners will be able to offer Windows Anytime Upgrade as online merchants, Microsoft said.

Microsoft also unveiled a promotion running from Jan. 30 through June 30 called the Windows Vista Family Discount, which will allow customers who buy Windows Vista Ultimate to license two additional copies of Windows Vista Home Premium at a reduced price of $49.99 each -- but only if they order online.

Still, some partners and observers downplayed the risk to the channel because they say business customers don't typically access the OS from the channel and rely on partners for Office and higher-end application needs.

"Enterprises will never do it, and not even midsized companies will relinquish control by allowing users to pull the OS off the Web," said a former CTO of a Microsoft solution provider, who declined to be named. "All you are saving really is the step of installing the OS from the CD. It doesn't help customers that much because their effort is in the special configuration of the applications, not the OS."

One Microsoft analyst claimed the software reselling business is over and predicted that some partners can generate a new revenue stream from the ESD programs.

"I don't think there's much of a business for Microsoft to take away here. The margins on Microsoft software aren't great, and most of the stuff available through the largest general channel, retail, is consumer-oriented. Consumers don't make much use of partner services today," said Paul DeGroot of Directions on Microsoft, a newsletter in Kirkland, Wash. "I can see potential for partners here, however. Some system builders or small computer shops could have steady business fixing failed upgrades for people who downloaded Vista without paying full attention to hardware requirements.

"If you're a small partner, it could be wise to acquire solid Vista installation skills and keep some Vista-ready hardware, such as the right kind of video card and extra memory, handy," DeGroot added.

One system builder agreed the Vista direct download program is a non-event because channel partners don't make money selling Microsoft software.

"It's no big deal. If a customer wants to download a 2.5-plus-Gbyte file and pay retail for it, let them," said Brian Bergin, president of Terabyte Computers, Boone, N.C.

Joe Toste, vice president of marketing at Equus Computer Systems, a Minneapolis system builder, said Microsoft is getting more involved in the sales process to push a bigger volume of Windows and Office attach rates.

"Microsoft has slowly been building the infrastructure to deliver complete software, for example, with Microsoft Anytime Upgrade. My belief is that the support that they are getting from tier-one OEMs such as HP and Dell, smaller OEMs and system builders for Anytime Upgrade is lukewarm," Toste said. "I believe Microsoft has received poor endorsement from their partners for these types of direct-marketing programs [and that] does not sit well for Redmond. They are taking matters into their own hands.

"Ironically, it doesn't affect the smaller hardware VARs as much," he added. "After all, these hardware VARs actually perform the value of installing and configuring the software. I think this hurts the New Eggs and Best Buys."