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Resellers wary of Microsoft store

Nitro, Microsoft's online storefront, isn't the only explosive Redmond will spring on its resellers.

REDWOOD CITY, California--Nitro, Microsoft's online software store, isn't the only explosive Redmond will spring on its resellers.

The company is talking with would-be partners about creating "wrapper" technology that would be built into future Microsoft products to make them easier to sell as software downloads. That move could boost software sales on the Net because resellers wouldn't need to put encrypted wrappers on the software--often a labor-intensive activity.

"We want to do a Microsoft-branded technology to install on our client products so anybody could play on the server side [to sell the software]," said C. Neil Farnsworth, general manager of Microsoft's Nitro (New Interactive Technology for Reselling Online) program, in an interview.

The software giant wants to build in the ability not only to sell software outright but also to accommodate such approaches as renting software, pay-per-use, rent-to-own, and licensing.

Microsoft has a pilot program with TechWave, called Liquid Motion, to test its technology. Despite that trial, however, Microsoft's technology group is evaluating similar software from Preview Systems and TestDrive.

Responding to questions at the CyberChannels conference on online sales of PC software and hardware, Farnsworth noted Microsoft isn't interested in communicating directly with online buyers if online resellers do it themselves.

"We are not trying to circumvent any relationships here," he added.

"As a reseller, I would be very concerned if Microsoft circumvented that relationship," countered William McKiernan, chairman of online store Software.net and e-commerce service provider CyberSource.

Both McKiernan and Howard Diamond of Corporate Software, a reseller to large corporations, downplayed Nitro's impact.

"It's designed to capture more individual sales," said Diamond, who's nonetheless worried that Nitro might become more competitive with his reseller business down the road.

"The biggest concern is who owns the customer," said Denise Sangster, CEO of CyberChannels sponsor Global Touch. Resellers fear that Microsoft might one day sell software directly to customers, rather than going through partners and distributors as it does now.

"Nitro is going to unleash customers' rethinking about Web buying," Sangster added. Charles Smulders, a Dataquest analyst agreed: "The Internet is bringing a fundamental shift in power. Resellers need to define what they do in an online world."

Although Nitro has taken heat from Microsoft resellers, Farnsworth said that the company is probably the last major vendor to create an online referral program. Netscape, Adobe, and Lotus, among others, have somewhat similar efforts.

Karl Hirsch, founder of Preview Systems, said Farnsworth's current description of Nitro is "dramatically different" from what Microsoft was saying about the program six months ago, in part because it downplays online sales. Preview Systems, which markets "wrappers" and other software for electronic software distribution (ESD), was formed earlier this month with the merger of Preview Software and Portland Software.

Originally, Hirsch added, Nitro had a stronger ESD component; Farnsworth said today that Microsoft expects 99 percent of software sold through Nitro would be shipped in traditional boxes, not downloaded.

If Nitro's effect on online software retailers remains unclear, the program already has changed the environment for technology providers for that market.

Hirsch confirmed that the recent merger to form Preview Systems was stimulated in part by Nitro, as was TestDrive's move from being a pure technology firm into building online software stores for others.

In addition, service provider CyberSource announced last week that it's working with giant distributor Tech Data to offer a turnkey solution for resellers that want to join Nitro but don't want to build their own stores.