Microsoft goes direct to drive profits

Microsoft has a new strategy to boost its sales and fend off rivals: go direct.

During the past two years, the Redmond, Wash.-based giant has increased the amount of software it sells through its Enterprise Agreement (EA) licensing program, under which the company sells applications directly to businesses. That's a big switch from previous plans, under which Microsoft relied on a worldwide network of resellers to find customers and sell its software, ideally for profit. Resellers are always pulled into EA agreements, but to service deals largely consummated by Microsoft. Microsoft then pays them a commission out of fees paid to Microsoft by the customer.

Under the EA plan, Microsoft representatives also spend more time and energy at customer sites discussing the technical or economic benefits of its wares. "We now estimate that 30 (percent) to 35 percent of large customers have Microsoft Enterprise Agreements," said Alvin Park, an analyst at Gartner. That's up from 15 percent in the recent past.

In March, Microsoft CEO Steve Ballmer said that 2,500 to 3,000 of Microsoft's largest 4,000 accounts, or 62 percent to 75 percent, have EA agreements. The direct push has only just begun. In 2001, Microsoft dropped the entry requirement from 500 desktops to 250, which has fueled growth and widened the customer base. Many of the company's new hires are field reps for EA, said Rebecca LaBrunerie, product manager for the worldwide licensing and pricing group at Microsoft.

"They have been pushing it very, very hard," said Paul DeGroot, an analyst at Directions on Microsoft. "It is the most lucrative form of agreement for Microsoft and involves the tightest relationship."

News source: C|net

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