OEM Landscape Changes

Microsoft’s most important sales channel, the OEMs and PC builders who ship Windows preinstalled on desktop PCs, is experiencing significant change. The proposed settlement in the antitrust case limits what Microsoft can demand of OEMs. Tough economic times have caused OEMs to look for ways to make more money on PCs by replacing Microsoft programs with those from competitors. On the other hand, the value of an industry standard desktop is so high for so many customers—including corporate purchasers, ISVs, and the OEMs themselves—that they may be loathe to depart from it.

Microsoft and OEMs

The OEM channel is the source of Microsoft’s strength in the PC software market. More than 90% of new Intel-compatible PCs are shipped to customers with Windows preinstalled on them, giving Microsoft an extraordinary advantage over competitors when it bundles programs with Windows: at virtually no cost, it can seed the market with more than 100 million copies of a new program within a year. Furthermore, these programs are already installed on the PC when the customer starts it up.