The Software Publishers' Association (SPA) is trying to get its members to adopt guidelines for the widespread sale of software over the Internet. And if they are adopted, they will have serious implications for dealers, as customers learn about officially sanctioned ways to buy popular software titles directly online.
According to the SPA, the guidelines released last month aim to 'establish industry-wide standards for the protection of the customer and the software publisher in electronic software distribution transactions while concurrently providing for enhanced service'.
The SPA defines electronic software distribution (ESD) as a way of providing publishers, resellers and users with an online alternative to the physical distribution of shrink-wrapped software.
The organisation suggests that, as online infrastructures develop, software publishers need to be ready to meet the demand of customers who wish to purchase and receive applications electronically - and the policy document is aimed at helping publishers figure out how to establish an ESD channel, how to know when any transaction involving its software occurs so it can protect intellectual property and how to provide customers with a successful shopping experience when they buy and receive products electronically.
The SPA document is the result of work by a committee of industry representatives and covers the route of a software product from the publisher, through the channel to successful installation on the software user's desktop.
A key issue here is that the committee recognised that software publishers may be considering the use of ESD for direct sales models, as well as for volume licensing programmes but decided instead to focus its report on single user, single unit sales or trial use, with simultaneous payment approval and the granting of access to product through a reseller.
Dealers should take some comfort from this, as the document deals directly with the question of whether official organisations such as the SPA are going to endorse the idea of using ESD to cut out the middle man and sell directly to users without involving dealers or resellers.
So, as far as the SPA is concerned, electronic software distribution possesses many of the same attributes as conventional physical delivery models. The publisher, distributor and reseller all work together to provide users with software and customer service, while protecting the publisher's intellectual property and sales. In fact, the SPA suggests that many of the responsibilities and roles each party plays in the physical world extend to the online world.
The SPA goes on to offer a number of reasons why everyone in the industry should take a hard look at ESD. The most obvious appeal is to customers, who can use it for greater shopping convenience, to achieve immediate delivery, have a broader global product availability 24 hours a day, can experiment with new pricing models (such as try-before-you-buy, pay-per-use and the ever-popular 'free') and get access to targeted information about upgrades and new products in which they are interested.
Meanwhile, the SPA suggests that publishers will also find themselves drawn to ESD channels for their products because they can offer a lower cost of goods sold, provide more efficient sales of niche market components and other low-volume products, offer the potential to achieve 100 per cent customer registration, can yield a more efficient marketing channel that may result in more upgrade purchases and offer the fastest time to market for new products (or ones that replace existing products).
In addition, the SPA says that ESD provides more efficient returns processing, improves inventory management by avoiding stock-outs in the channel, allows for alternative pricing models, such as time limited software licences, rentals and subscriptions, provides for easy maintenance management and upgrade fulfilment - and potentially better market information, faster.
The organisation suggests that distributors and resellers also have many reasons to offer ESD as an added weapon in their selling arsenal. The reasons cited by the SPA include:
No physical inventory to manage
No inventory carrying costs
A scalable sales environment without traditional cost increases (renting more shop space, hiring more sales people, printing more catalogue pages and so on)
Ability to market to users one-on-one
Opportunities to carry a broader product selection
More flexibility and timeliness with pricing and special offers and the facility to receive immediate feedback
Elimination of geographical boundaries, depending on publisher and national government policies
More effective try-before-you-buy distribution of new products
Faster time to market
Easier and more flexible bundling and unbundling of products
Faster introduction of upgrades and bug fixes.
When there's a new job in town, whether it's selling software online or chasing ghosts, you have to know who you will rely on to set it all up. According to the SPA, electronic software distribution will require a clearing house which will be a vital component in the widespread use of ESD transactions.
The integrity of both software licences and transactions will, suggests the SPA, demand such an entity. With physical software distribution, the cost of manufacturing units of finished goods provides a barrier to counterfeit reproduction and sale of a publisher's product. ESD can eliminate this barrier, so the SPA proposes that the clearing house function should provide publishers with an independent means of auditing product distribution and sales.
The clearing house role can be played by a third party or it can be a function within a reseller or publisher's organisation. In the latter case, the SPA says it is important that clearing house reports continue to provide independent transaction auditing.
'When a publisher decides to distribute software electronically, it provides a software master to its selected channel partner(s). Before a copy of that software is sold and downloaded to a user, the clearinghouse, a channel partner or the publisher must manufacture a secure, electronic version of that software packaged in a digital wrapper or envelope. The secure package cannot be unlocked and installed until the clearing house approves customer payment and sends the user the unlock key, either transparently and automatically or as part of a separate delivery, such as an email.
Packaging, locking or wrapping the software should be performed in a manner that registers the software master with the clearing house and channel merchants. An independent clearing house should control unlocking; a private, unique key, generated specific to the transaction, ensures all parties will be informed of each transaction. In this manner, the user licence agreement acceptance is registered, all channel partners are paid, and the publisher is compensated for its intellectual property.'
Similarly, the SPA suggests that the clearing house should maintain a central EULA database, so that all customer activity relating to a particular instance of licence rights is recorded and managed centrally. It further suggests that, although the clearing house should maintain a database of EULAs, the software publisher should remain the source of the agreement.
This is supposed to assure customers they are receiving software rights granted by the publisher and not an intermediary. The SPA recognises, however, that the channel needs access to the EULA database when selling new software rights or returning or upgrading software - and that it should contain customer transaction information only.
Here's how the SPA thinks buying software online will happen. The role of the customers will be to choose what to buy. Then they will provide valid credit information to make the purchase, accept the EULA terms, download the ESD package and use the unlocking mechanism received from the clearing house to electronically unwrap the ESD package. From there on in, it is similar to any retail purchase - the customer installs and uses the software, notifies the reseller of any delivery problems (or returned merchandise requests) and ensures the software is backed up in case of a hard disk crash.
The software publisher, meanwhile, is expected to provide the software application master and an electronic version of the EULA, set channel prices, terms and conditions, set return, rebate and upgrade policies, determine ESD pricing, product form factor, warranty terms, distribution channel terms and conditions, create a compressed, encrypted ESD package (the SPA thinks this function may well be outsourced in many cases), provide electronic marketing materials (such as box shots and product descriptions) and generally drive customer demand for the products.
The role of the distributors in the SPA's brave new ESD world is to manage communications and credit with resellers, report transactions to the clearing house, set reseller prices and credit terms, provide resellers with turnkey, plug-and-play ESD system support, report purchase activity to the publisher for billing (when it is received from the clearing house) and monitor reseller compliance with the publisher's ESD policies.
Meanwhile, the reseller is supposed to drive customer demand 'on the ground' (or at the electronic storefront level), determine appropriate, secure product delivery technologies and relationships, manage communications and credit with customers, report transactions to the clearing house and set customer prices.
Finally, this new clearing house would be expected to provide a locking/unlocking mechanism for authorised customers, record and report transactions between ESD participants, maintain the EULA database, provide privacy and confidentiality of both a transaction database and the EULA database, provide fault-tolerant, secure hardware and communications links to protect data and intellectual property, provide privacy and security of sales and customer information based on the principle of 'informed consent', provide system scalability and security and fight fraud.
Now, all of this is a tall order for any kind of sales structure - let alone one that is principally going to exist only on the screens of those who use it.
But the huge success of so-called free software distribution so far has shown that the public has an appetite for getting their software electronically and a way must be found to do it that will both keep customers happy and maintain the new cyber-channel partners in profit.
ESD will work because customers will demand that it does. There are already many leading companies involved in setting up ESD schemes (Microsoft is probably the key model for many dealers to watch) and it is clear that many of them will gain widespread use because it makes so much sense for them to do so.
The broad support enjoyed by the SPA throughout the industry suggests that the ideas outlined above may well gain widespread currency as ESD evolves into a reality.
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