System is no license to steal

Two newly certified clearinghouses will track licensed Microsoft software sold over the Internet.

Microsoft will certify clearinghouses from CyberSource, which has run the Software.net storefront on the Internet since November 1994, and LitleNet, which provides online marketing services.

By the end of the year, corporations that buy products in the company's Select and Open Licensing programs will be able to report the number of Microsoft software users under the online tracking system.

Microsoft's Johan Liedgren, director of channel policy, also expects online software retailers soon to establish electronic coupon systems, loyalty programs to reward frequent buyers, short-term software bundles, and "try-before-you-buy" offers that have been difficult to implement for packaged software.

Certification is important because it will let Microsoft's existing resellers and distributors sell and download Microsoft software via the Net, thus boosting Microsoft's electronic distribution network while protecting its relationship with its traditional resellers.

The clearinghouses will serve as intermediaries that will track license numbers of the products, ensuring authenticity of the software and payments to Microsoft. The distributors, in turn, are relieved of the headache of the laborious tracking process.

Microsoft insists that it is not interested in bypassing its distributors and retailers by selling directly to end users.

The software giant outlined the criteria for certifying such licensing clearinghouses in May. Big Six accounting firm KPMG Peat Marwick checked to be sure requirements were met the clearinghouse procedures were finalized.

Microsoft is working with the Software Publishers Association, a trade organization, to facilitate discussions of industry standards. "We foresee a lot of support from other software vendors who want to do the same thing," Liedgren said.

CyberSource already has a customer for its service. Merisel, one of the three largest U.S. distributors, has signed on to use CyberSource's Electronic License ClearingHouse, to issue end-user license agreements to buyers. Those licenses are digitally signed and sent over the Net in encrypted software containers.

In addition to selling directly to Net buyers, CyberSource is offering that technology to others, particularly big software publishers, that want to set up their own Internet distribution.

"This adoption of a multitier electronic distribution model allows publishers like Microsoft to leverage their existing channel relationships," CyberSource president and CEO Bill McKiernan said in a statement.

Added Tom Litle, LitleNet president: "This certification validates that electronic distribution of intellectual property is becoming a safe channel for businesses with significant electronic assets. I feel like it will change the world."

LitleNet has been working with online marketers, including America Online, for years. Last year, Litle & Company, as it was then called, sold its credit card processing business to a firm specializing in that industry. LitleNet is the successor organization.

LitleNet is also involved in the Electronic Licensing and Security Initiative, a consortium announced in May to provide an online clearinghouse for software licenses. ELSI, as the group is called, also includes AT&T, IBM, corporate software reseller Stream International, Internet access provider BBN, and a consulting arm of KPMG Peat Marwick.

It remains unclear whether LitleNet will offer its clearinghouse services by itself or through the broader consortium.

Earlier this month, Microsoft and VeriSign announced a program that uses VeriSign's authentication technology and digital IDs to reduce fraud and the spread of viruses in downloaded software. Authenticode, endorsed by more than 20 software publishers, provides a unique identification for each software publisher so that buyers who download software over the Net don't have to worry that the code has been altered or tampered with.

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