Microsoft is the world’s largest software company, who operates and distributes its products throughout the world (Company information). Microsoft’s distribution largely depends on hardware manufactures to pre-install their software (Msdn). “Windows Division revenue growth is largely correlated to the growth of the PC market worldwide, as approximately 75% of total Windows Division revenue comes from Windows operating system software purchased by original equipment manufacturers (“OEMs”), which they pre-install on equipment they sell” (Microsoft annual report ). Often times, Microsoft will distribute software in bundles rather than individually such as MS Office Suite (Msdn). Microsoft distributes products through four main channels; OEMs, distributors and resellers, and online (Microsoft annual report). Distribution Channels
Microsoft distributes software through OEMs that pre-install their software on PCs, servers, smartphones, and other devices that they sell to end customers (Microsoft annual report). The largest component of the OEM business is Windows pre-installed on PCs (Microsoft annual report). OEMs also sell hardware pre-installed with other Microsoft products, including server and embedded operating systems, and applications such as our Microsoft Office suite (Microsoft annual report). In addition to these products, Windows Live Essentials suite is also marketed this way (Microsoft annual report). OEMs can be broken down into two categories.
Direct OEMs consist of the largest; Microsoft has direct agreement with them (Microsoft annual report). Microsoft has agreements s with virtually all of the multinational OEMs, including Acer, ASUS, Dell, Fujitsu, HTC, Hewlett-Packard, LG, Lenovo, Nokia, Samsung, Sony, Toshiba, and with many regional and local OEMs (Microsoft annual report). The second category of OEMs consists of lower-volume PC manufacturers (system builders), which source their Microsoft software for pre-installation and local redistribution primarily through the Microsoft without a direct agreement or relationship with Microsoft (Microsoft annual report). Distributors and Resellers
Many organizations license products and services through enterprise agreements transact directly with Microsoft with sales from solution integrators, independent software vendors, web agencies, and developers that advise organizations on licensing products and services known as Enterprise Software Advisors (Microsoft annual report). Organizations also license products and services indirectly, primarily through large account resellers (“LARs”), distributors, value-added resellers (“VARs”), OEMs, system builder channels, and retailers (Microsoft annual report). LARs is primarily considered with large organizations, distributors resell primarily to VARs, and VARs typically reach small-sized and medium-sized organizations (Microsoft annual report).
Enterprise Software Advisors are also authorized as LARs and operate as resellers for licensing programs(Microsoft annual report).Retail packaged products our primary distributed through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets, including Microsoft Stores (Microsoft annual report). Online
Increasingly Microsoft is delivering through cloud-based services (Microsoft annual report). Online content and services are delivered through Bing, MSN portals and channels, Microsoft Office Web Apps, Windows Phone Marketplace, Xbox LIVE, and Zune Marketplace (Microsoft annual report). Content and services to business users are provided through Microsoft Online Services platform, which includes cloud-based services such as Exchange Online, Microsoft Dynamics CRM Online, Microsoft Lync, Microsoft Office 365, Microsoft Office Communications Online, Microsoft Office Live Meeting, SQL Azure, SharePoint Online, Windows Azure, and Windows Intone (Microsoft annual report). Microsoft Developer Networks subscription content and updates, periodic product updates, and online technical and practice readiness resources are also available online (Microsoft annual report). Products are also available through the online store microsoftstore.com (Microsoft annual report). Challenges of Distribution
Competition and Open Source Software
Windows operating system faces competition from various commercial software products and from alternative platforms and devices, mainly from Apple and Google (Microsoft annual report). The introduction of low cost products such as netbooks, tablets, and mobile devices all gave raise to new competition and operating systems such as Google’s Android system (Microsoft distribution). Personal computers, mobile-phones, personal digit assistants, entertainment-oriented hand-held computers, and similar wireless products for Internet access do not require Window operating system products (Microsoft distribution).
Open source software (OSS) is computer software with its source code made available and licensed with an open source license in which the copyright holder provides the rights to study, change, and distribute the software to anyone and for any purpose (Open Source) . Microsoft acknowledged Linux (OSS) is a growing challenge to its business and distribution channel in its 10-K filing with the Securities and Exchange Commission. Microsoft “is facing growing pressure from open-source software across every segment of its business” (Webb, 2004). IBM’s endorsement of Linux has accelerated its acceptance as an alternative and many OEM’s have partnered with Linux (Webb, 2004). Many organizations such as local governments of Munich Germany and Bergen Norway left Microsoft licensing in favor of Linux (Webb, 2004). Operating Online
This allows Microsoft to access to clients all over the world. However, there are several challenges that make it difficult to manage. Commerce conducted in foreign countries is subject to international trade laws and the laws of that nation (Hodgetts & Lufthans, 2003). A company that intends to use Internet sales as a channel of distribution needs to be aware of the laws that can govern nearly every aspect of a trade (Hodgetts & Lufthans, 2003). Another challenge for e-commerce is making sure that the customer has instant excess to the service. In the case of the cloud making sure it is always available. Another challenge is foreign currency and adapting the services to the local country and area (Hodgetts & Lufthans, 2003). Changes in the Market
Distribution is also affected by changes within the market such as PC market changes driven by shifts between developed markets and emerging markets, consumer PCs and business PCs, and among varying forms of computing devices; the attachment of Windows to PCs shipped and changes in inventory levels within the OEM channel; and pricing changes and promotions, pricing variation that occurs when the mix of PCs manufactured shifts from local and regional system builders to large, multinational OEMs, and different pricing of Windows versions licensed (Microsoft annual report).
Overcoming the challenges Microsoft needs to compete effectively by giving customers choices, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software (Microsoft annual report). Microsoft needs to offer services and products that provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability (Microsoft annual report). To minimize challenges of distributing online and changes in the market, Microsoft should continue to have operation centers throughout the world; this will also address the challenges of foreign currency and regulations.
These centers will allow products to be localized to the area saving in transportation and delivery fees and offer the ability to stay ahead of the changes in the market. In effort to increase customer service and minimize warehousing and transportation expenses. Microsoft should offer much of it services and products especially software on the online Microsoft store. This shifts the burden of shipping cost on to the customer or eliminates it completely. The only cost would be the cost of storing it on the cloud. In the event that shipping is needed, Microsoft should make a practice to ship products promptly upon receipt of purchase orders from customers; consequently eliminating backlog (Microsoft annual report).
Company information. (n.d.). Retrieved fromhttp://www.microsoft.com/about/companyinformation/ourbusinesses/en/us/business.aspx Hodgetts, R., & Lufthans, F. (2003). International management. (5 ed.). New York NY:McGraw-Hill Irwin. Microsoft annual report. (n.d.). Retrieved fromhttp://www.microsoft.com/investor/reports/ar12/financial-review/businessdescription/operating-segments/index.html Microsoft distribution. (n.d.). Retrieved from http://www.slideshare.net/EMBS2007/microsoft Msdn. (n.d.).