Will Microsoft Online Store Affect Distributors?

By Kevin McLaughlin, ChannelWeb
2:07 PM EST Thu. Nov. 20, 2008
Microsoft (NSDQ:MSFT) last week started selling some of its products to U.S. customers through an online storefront for the first time in its history. While most channel partners don't see this as a threat to their businesses, some speculate that distributors might view things differently.

The Microsoft Store lets customers buy and download products via Electronic Software Distribution (ESD) and also get direct shipments. Microsoft says the store will help customers save on shipping costs and alleviate their fears of not having the software on physical media to reinstall products at a later time.

Partners can now buy all server and related licenses from Microsoft directly for customers that already have an existing license and need to move to another SKU, said Mark Crall, president of Charlotte Tech Care Team, a Microsoft partner in Charlotte, N.C.

Crall doesn't think Microsoft's goal is to cut out distributors or partners, and says the Microsoft Store makes sense if it can simplify the process of choosing and acquiring the right licenses for customers, and deliver them at a lower cost.

"When Microsoft can provide the value-added service that a distributor -- or even a partner -- uses to justify their margins, then why wouldn't they?" Crall said.

Chris Rue, CEO of Black Warrior Technology, a Northport, Ala.-based solution provider and Microsoft partner, says any conflict will likely be confined to the big box retail channel and office-supply stores. "All the stuff available on the Microsoft Store right now is the same stuff you see in the aisles of those types of stores," Rue said.

However, Rue said there are "deep ranging effects" associated with the Microsoft Store, which could potentially reach down to the distributor level. "I'm not sure this is the type of news anyone selling Microsoft products in any quantity wants to see in the current economy," he said.

Windows Server 2008 and System Center Essentials are the only products currently listed in the Business section of Microsoft's Online Store, but on the purchasing options Web page for Small Business Server, Microsoft indicates that Small Business Server will be available for online purchase sometime in the future.

But if the Microsoft Store is successful, "there's really no reason for Microsoft not to start offering the higher end products," Rue said.

Some VARs see the Microsoft store as welcome relief for their licensing complexity woes.

Jim Liska, sales manager at Orlantech, an Orlando, Fla.-based solution provider and Microsoft Gold partner, says the Microsoft Store will help him save time by eliminating the need to navigate Microsoft's Byzantine licensing programs.

"After a decade of selling Microsoft products, I still have trouble with licensing issues, and my customers would prefer to leave that to someone else," Liska said.

"The number of different choices customers have when shopping for software is mind-boggling," agrees Michael Cocanower, president of Phoenix-based solution provider ITSynergy. "I have no doubt that companies like us add value to the transaction by helping the customer navigate that maze."

But despite Microsoft's channel-friendly track record, some partners see the Microsoft Store as a definitive step on Microsoft's part toward establishing a more direct relationship with consumers.

"Do you think that bankruptcy of Circuit City (NYSE:CC) and CompUSA had anything to do with the idea that Microsoft needs to go at it alone to reach the end customer?" wrote Vlad Mazek, a Microsoft Exchange MVP and CEO of Own Web Now, an Orlando, Fla.-based solution provider, in a recent blog post.

"Microsoft has effectively shot the middleman that stood in the way of their direct relationship with the user -- if you were that middleman, your days are unfortunately numbered," Mazek wrote.

If Microsoft does attempt to fill the shoes of their channel partners, the company had better include potential collateral damage in its ROI calculations, according to Crall.

"Going down this path, as companies like Dell (NSDQ:Dell) and Symantec (NSDQ:SYMC) have recently proven, is a potentially slippery slope that can cause an irreversible backlash from their channel partners," Crall said.

via ChannelWeb

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