Resellers' traditional revenue streams from installation and upgrades are under threat following Microsoft's announcement to develop its own network computer.
At its professional developers conference in Long Beach, California, earlier this month Microsoft warned that dealers would have to change the focus of their service offerings if they wanted to survive in the world of zero administration on the desktop.
The warning came after the software giant announced its own cheap PC solution, the Net PC, having previously scoffed at Sun's idea of a network computer.
Worried that it might be seen to be losing its lead in the desktop market, Microsoft tried to steal Sun's thunder by launching its Net PC one day before Sun announced its Java Station. By coming up with its own version, the vendor has been able to carefully position the machine as part of the PC and Windows family, not as a replacement. It is now talking about thin clients as if selling stripped-down versions of Windows was always part of its long-term strategy.
Jim Allchin, senior VP of desktop and business systems division at Microsoft, claimed total cost of ownership (TCO) was even more important than the Internet to Bill Gates.
Paul Maritz, group VP of Microsoft applications and platforms, hinted at the headaches the firm has suffered during its two technological upheavals. 'The Internet was a major challenge. It happened earlier than most people realised and forced us to change our strategy,' he said.
'Now Microsoft and the resilience of the PC and Windows architecture is being tested again with the challenge of distributed computing.'
While admitting that distributed computing and TCO was a challenge, Maritz was keen to emphasise that it did not signify the end of Windows' rule on the desktop. 'We are investing $1 billion in and around Windows to make sure we can get Windows and the PC platform to adapt and be the platform of the future,' he said.
TCO is based around two items, the Net PC and what Microsoft refers to as 'zero administration' of software. According to Microsoft, 60 per cent to 70 per cent of cost is incurred through hardware and software upgrades, which is often lucrative to the reseller.
The Net PC specification is a closed box, designed to prevent user modification and expansion. The company aims to take away cost by automating changes such as software upgrades, and by moving as much as possible of the administration and maintenance burden to centralised servers.
Gates backed up his revision to developers, saying: 'The amount of changes to the hardware that will be required during the life of a PC are minimised. In most cases, the only additional thing you would do is add more Ram and because it's a uniform hardware configuration you've got very low cost.' The benefits to users will be reduced support costs, a stable hardware platform and a lower initial purchase price.
According to Microsoft, its offering brings one large benefit to customers, and to Microsoft in particular - corporates can build on the investments they have already made. One user claimed that it had reduced the cost of support by $25 million, partly because the firm could sack 50 per cent of its IT professionals.
At first sight, the Net PC architecture - where software is upgraded centrally and the need for support is minimal - sounds like a death blow to resellers' services revenue. But according to Shaun Frohlich, MD of Microsoft reseller Bytes, it is good news.
'However much it is possible to reduce administration costs or automate installation, you will never have computers setting strategy or deciding where new users need equipment. For every #100 spent on hardware, users need to spend #20 on services, but they can only afford to spend #10.
So their requirements for services outstrips their budgets at the moment,' he said.
'When software gets loaded automatically they won't have to worry about basic support. This means zero administration is not a threat, but an opportunity because automation will free up the budget.'
Gordon McDowell, MD of distributor Micro Peripherals, believes lower service revenues will be more than offset by overall market growth. 'This just sounds like the old days when we had a big central computer and all these workstations. But if it means it brings computing to everybody then that will just increase the number of peripherals sales, so it's a good thing,' he said.
Microsoft says dealers must adapt or die. John Roberts, director of marketing for desktop products at Microsoft, said: 'If you look at the business around software, there is more money to be made on services.
The muscle behind selling in the channel is not the person shifting the box anymore, so dealers need to look at making money in services and support.
'TCO means there will be a shift from maintenance to value-added services.
This will displace the resellers' role to the extent that they have to focus on value like training, which will become very important.'
The need to get into services may be an old cry. As Frohlich said: 'Those who aren't in services have always been dead, so this doesn't change anything.'
But most dealers don't do as much services business as they'd like, and when TCO becomes the principal factor in buying decisions, they will have to develop more focused services.
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