Office 2007 Referral Payment Pilot Irks Some Partners

The Referral Payment Pilot Program for Office Ready, which begins Jan. 30, is open to large system builders that pre-install the Microsoft Office Ready image on PCs sold to resellers. Once end users activate the license on their systems, the system builder then receives a referral payment, according to a document viewed by CRN.

As part of the program, partners are assigned a unique Referral Tracking Code (RTC) during enrollment that's injected into their pre-installed Microsoft Office Ready PC. When a customer activates a license, the partner will be assigned a credit through that system, the document said. Enrollment began Jan. 2.

Microsoft executives acknowledged that the pilot initially will be available only to some large system builders, but they said that if the program works, it may be rolled out to the entire channel within months.

Those selected to participate in the pilot will likely see a higher attach rate of Office sales, which has always been a sore spot for the channel, according to industry observers.

"We have not heard about Microsoft's offering of referral dollars to system builders for getting Office 2007 activations," said James Huang, marketing director at Amax Information Technology, a Fremont, Calif.-based system builder. "If it is true, it will be another way for system builders to earn more revenue from Microsoft product sales."

Still, the pilot has upset some mainstream system builders, who belive the program gives larger system makers an unfair advantage.

And that's not the only concern. System builders claim that the new Office 2007 medialess license kit they are instructed to preinstall means customers can activate Office 2007 through NewEgg, TigerDirect or another online discounter.

One VAR said it was his understanding that the Office Ready program would compensate all system builders with a referral fee if customers bought their PCs and activated Office 2007. But that's not the way it is.

"That was the original plan," said Glen Coffield, president of the Cheap Guys, Orlando, Fla. "So the theory now is that we preload Office on our machines, customers have 30 days to trial it and if they activate it through NewEgg, there's no commission for us."

Microsoft started shipping Office 2007 preinstallation kits to distributors on Jan. 18, although not all system builders -- including Cheap Guys -- have received copies yet. In any case, Coffield said he won't preload Office 2007 until he's eligible for a referral fee.

Coffield added that he's also concerned that customers who activate through online discounters or other vendors won't get media and will turn to him for service if their PCs crash. He said he has ordered more copies of Office 2003 and will push that version.

"If they fix the program, great, it would be good for us," Coffield said. "But now, if a customer buys Office 2007 through NewEgg and has a problem, they're going to come to me, and I'm going to fix it?"

Microsoft has acknowledged such concerns by system builders and understands they may not opt to preload Office 2007 on their systems. But company executives said they don't want to roll out the program to all system builders nationwide until it's proven to work.

Microsoft said it's a small referral fee but didn't specify the amount.

"In the first instance, we're trying not to go too broad and want to make sure it can scale," said John Ball, general manager of U.S. local OEM business at Microsoft. "It's a pilot program, so it's tough to make it operational to 30,000 partners."

Ball said the intent is to determine if the program drives a higher Office attach rate through the channel and then make it available to all system builders if it goes well. Microsoft sells the vast majority of Office through licensing, he said.

Other system builders say they hope to see more Office 2007 attach rates on system sales.

"Microsoft has given system builders the ability to load a 60 -ay free trial of Office on every computer, so if we don't get the sale up front, we can now get it after the 60 days," said Joe Stinner, president of USitek Group, a system builder in Kenmore, N.Y.

Todd Swank, vice president of marketing at Nor-Tech, a system builder in Burnsville, Minn., said he's pleased that Microsoft is taking steps to help compensate channel partners, especially since customers can donwload Vista and Office 2007 direct from Windows Marketplace.

"If end customers are able to get the new products direct from Microsoft, there's a definite concern that would take away a revenue stream from us," Swank said. "That being said, Microsoft is taking steps to help compensate channel partners in different methods than they have previously."

Large system builders may have to work with resellers cooperatively to make the referral program work, said one system maker, who asked not to be named.

"Anytime I can increase the attach dollars per system is a good thing," the system builder said. "The challenge to anyone selling to resellers is to manage the pass-through of dollars. Our resellers will want a piece of the action. I think some system builders that think they can capture the entire upgrade without compensating their reseller partner run the risk of alienating them."