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Will Microsoft
Will Microsoft's OEM Soap Opera End with Windows 7?

By Jennifer LeClaire
August 17, 2009 2:24PM

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As the Windows 7 rollout nears, Microsoft's prickly relationship with OEMs is in the spotlight. OEMs have long complained about Microsoft's pricing, but with Windows 7, Microsoft has made clear efforts to treat OEMs more like partners with both Windows 7 development and Microsoft's retail operations. OEM-Microsoft infighting may subside.
 


Tech news headlines abound around Windows 7. Some are looking at the improvements. Others are looking at Microsoft's past mistakes with Vista. Still others are looking at how to upgrade. Then there's the behind-the-scenes wrangling between Microsoft and PC manufacturers.

Some analysts compare it to a soap opera. Soap operas thrive on sickness, and the PC segment is currently ailing. Worldwide PC shipments totaled 68.1 million units in the second quarter, a five percent decline from the second quarter of 2008, according to preliminary results from Gartner.

"In the first quarter of 2009, inventory restocking played a major role in shipment growth, but this was less of a factor in the second quarter," said Mikako Kitagawa, principal analyst at Gartner. "Though the market was still in decline, the better-than-expected results can be interpreted as a small sign of a PC market recovery in terms of shipment volumes in some regions."

Price-Sensitive PC OEMs

Although the down economy has hit just about every tech sector, some PC OEM health issues are self-induced, according to Rob Enderle, principal analyst at the Enderle Group. OEMs put software on their PCs to make a few more points of margin, but that often critically damages the user experience, he said. These OEMs generally feel unwilling to truly own their customers, so are likely to point the finger at Microsoft if there is a problem. Therein is the soap opera.

"The word dysfunctional seems hardly adequate to this situation. Part of this is money-related in that the OEMs think that Microsoft is taking more than its fair share of the profits," Enderle said. "But I think the root cause is a fundamental shift in these vendors' relationships. While initially PC vendors held the primary position, over time Microsoft has come to occupy the alpha position, and OEMs are passively/aggressively rebelling against this change."

On one side of the table, OEMs complain about Microsoft's pricing, its complexity, and the lack of funding to generate demand, Enderle said. On the other side of the table, Microsoft treats the OEMs as subordinates, not partners, dictating terms such as pricing and product retirement. As Enderle sees it, the problem isn't really Microsoft. Rather, it's the OEM's inability to focus on anything beyond price.

Microsoft Embraces OEMs

Microsoft has made clear efforts to treat OEMs more like partners with the Windows 7 development and its retail operations. Microsoft stores will feature PCs and laptops from partners, offering another sales channel. Microsoft's retail strategy is ramping up slowly, but the strategy is in place. Enderle thinks this is a step in the right direction toward stifling much of the infighting between vendors.

"The PC market has long been defined by dysfunctional behavior, but that is about to change," Enderle said. "Microsoft is quietly moving to consolidate its control over the PC platform and, if they do it correctly, the result may be a set of products that blend the interoperability and compatibility of a Microsoft solution with the user experience of an Apple product."
 

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