Let's shop at Microsoft

Let's shop at Microsoft

Dell did it. Compaq had trouble doing it. Now Microsoft, in a small but significant step, is doing it - selling its wares direct over the Web and bypassing the resellers.

Online store sells popular products such as Office, Windows 98, games and hardware peripherals. It's by no means a major push into direct software retailing and represents a negligible portion of Microsoft's sales. But it marks a divergence from the company's previous policy of nurturing channel partners whenever possible.

It didn't used to be that way. After a beta test under the code-name Nitro, the site launched in March and offered customers a choice of four resellers - CompUSA, Insight, CDW and - or Microsoft itself. Goods direct from Microsoft were priced about 20 per cent above reseller cost. But only the most determined shopper could have known: There was no price chart, and navigation was so bad that clicking back and forth to comparison-shop was close to impossible.

Version two of the site was supposed to give resellers "more marketing control", a Shop.Microsoft manager said at the time. Not quite: the site relaunched in August with zero resellers. Two months later, buying directly from Microsoft remains the only option. Prices are still generally higher than at resellers' sites [see chart below], but there's no indication on Shop.Microsoft that better deals can be had elsewhere. According to Microsoft, the direct-only situation is temporary.

"Due to operational and technical conditions, we couldn't go out with resellers," says Ken Schneider, director of customer marketing. "This is not a formal long-term decision." Yet Microsoft has no timetable for bringing resellers back.

Resellers are quick to praise Redmond as a business partner - that's especially true for those with the coveted "large account reseller" status, which allows them to sell Microsoft products to corporate customers. But they do note problems that go beyond technical glitches to the heart of one of the most pressing business questions of the Internet Economy: whose customer data is it, anyway?

"They were going to take the order themselves, ship it themselves and basically let us know someone had clicked our button," says Valerie Paxton, VP of communications at Arizona-based Insight.

"We said thanks, but no thanks. We want the relationship with the customer."

Schneider says the customers are in fact Microsoft's. With no connection to, Shop.Microsoft is strictly targeted at visitors to Microsoft's corporate site who want quick, easy access to products.

Schneider downplays Microsoft's direct sales through the Shop.Microsoft site. He says it's a miniscule portion of total company sales (which is true), and notes that it tries to sell a "mix of products you can't get in the channel" (which is not true - the site prominently displays Windows 98, Office 2000, Money 2000 and other top-selling programs and games).

Channel relationships are a particularly touchy issue in Redmond. Executives including president Steve Ballmer have said that the Office application suite, which contributes about one-third of the company's $US20-billion-plus annual revenues, will be offered via the Web in some form. No date has been set, but one scenario has Microsoft experimenting with distributing the software itself electronically.

"[Microsoft will] be nibbling around the edges to see what draws howls of protest from its channel partners," says Dwight Davis, an analyst with high-tech research firm Summit Strategies.

Not only is mass-market electronic software delivery inevitable, but also it is a natural way for Microsoft to cut packaging and distribution costs, release updates as soon as they're ready (which it's already doing with browsers and bug fixes), and gather instant customer preference and behaviour data. At any rate, Microsoft won't shut down its Shop site, even at the risk of alienating resellers.

"It would be a disservice to our customers," says Schneider. Besides, sales on the site in the two months without resellers have been about equal to sales in the five previous months with them, he notes. If Microsoft's direct-sales prices suddenly compare favorably to those of its resellers, all bets are off.

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