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Do online sales pay off?

The conventional wisdom holds that selling software online is a big win for everyone--publishers, Internet merchants, and buyers.

Where better to catch up on the State of the Download than the twice-annual conferences of the Software Publishers Association, which gathered last week in San Jose, California.

At the conference, software publishers interested in selling over the Net and vendors, who have the technology, services, or distribution to help them, talked shop and scoped out the competition.

The Internet seduces software publishers: No boxes to ship, no inventory to finance, unlimited shelf space. The conventional wisdom holds that selling software online is a big win for everyone--publishers, Internet merchants, and buyers.

But an SPA survey, released last week, produced one disconcerting result: Nearly half of the responding publishers say selling online costs more than selling through traditional distribution channels.

"That doesn't make any sense," said Dwayne Walker, CEO of TechWave, which is both a technology provider and distributor to a network of online software stores.

The SPA report speculates that hefty start-up costs for electronic software distribution outstrip early revenues. As ESD volumes climb, those start-up costs will be spread out over more purchases, and selling online will become cheaper.

But that's not the only thing roiling the ESD space.

Egghead lays egg.
Online resellers are scarcely trembling with dread as the brick-and-mortar software retailer stumbles online. Darryl Peck, CEO of Cyberian Outpost, joked about how beleaguered Egghead decided to go Internet-only:

As a subordinate recounted the company's latest financial woes, an Egghead bean counter startled: "What? You mean we still have 80 stores?"

NITRO means dynamite.
For resellers, Microsoft?s new NITRO program, for New Interactive Technology for Reselling Online, is short for nitroglycerin, the stuff of dynamite.

Starting next month, Microsoft intends to sprinkle "Buy Now" buttons throughout its massive Web sites, to give visitors a chance to buy software on the spot. The idea, as Microsoft explains in painstaking detail, is to make it easier for visitors to buy software from resellers. Visitors who push the "buy now" button will be linked to a page of online sellers.

But if customers insist, Microsoft will sell them software, charging the full suggested retail price, generally 10 to 20 percent higher than the retail price. Resellers give buyers a better deal, but incidentally, Microsoft gets retail pricing, not wholesale, for anything it sells when its NITRO store opens in August. Microsoft?s plan to charge resellers for every lead also rankles.

Reassuring its resellers, one Microsoftie at SPA called NITRO a "reseller referral program." Much of the audience guffawed. Call it a middleman's nightmare.