CRN Survey: Microsoft Investment In Dell Could Jeopardize OEM Partner Relationships

Top OEM executives and solution providers interviewed by CRN say they see a Microsoft investment, which could come with a seat on Dell's board of directors, giving Dell an unfair pricing and technology advantage, particularly in the intensely competitive consumer PC market.

Among the top Microsoft OEM PC partners likely to be negatively impacted by the Microsoft investment are HP, Samsung, Lenovo, Sony and Toshiba, according to PC OEM executives.

"It's a high-risk investment," said one top executive for a Microsoft OEM, who did not want to be identified. "It is going to be hard for Microsoft to manage its other OEM relationships. It is definitely going to negatively impact those relationships."

PC OEMs said the biggest potential impact will be in the consumer PC market, where winners and losers can be determined by even small Microsoft Windows 8 or Office pricing advantages.

Dell is already one of Microsoft's select Large Account Resellers -- a select group of partners that have volume software licensing advantages.

"It's a vicious market," said the Microsoft OEM partner of the consumer market where a Microsoft investment in Dell could shift the balance of power. "Windows 8 is a $100 product so it is 20 percent the cost of your cheap desktop system" with no special pricing unless you get "into stratospheric volumes."

Dell and Microsoft would not comment on the potential ramifications of the leveraged buyout.

The PC OEM executive said the Microsoft investment could have the biggest impact on top OEMs such as HP. "It's a real problem for them," he said. "The question is: Will Dell get better pricing in the consumer PC market from Microsoft? There is already no money to be made in that business. There wasn't any money to be made before. What happens now? It's a five-point [margin] business with high support costs which is why [former HP CEO] Leo [Apotheker] wanted to get rid of it in the first place."

HP would not comment on how a Microsoft investment in Dell would impact its PC OEM relationship with Microsoft.

The potential investment in Dell, PC OEM and solution provider executives say, comes after Microsoft has already damaged once-tight PC OEM relationships by deciding to compete head to head with its partners in the booming tablet market. The potential Microsoft investment in Dell comes with the software giant selling its own hardware, the Surface tablet.

That move sent ripples through the Microsoft PC OEM partner network and even among the solution provider partners that carry those products.

The strategy shift has put Microsoft into competition with the PC partners that it once teamed tightly with to build a onetime operating system and productivity software suite monopoly. That monopoly has been battered by tablets and smartphones from the likes of Apple and even Samsung, which is using the Android operating system on its popular smartphone and tablet products.

Samsung, for its part, recently nixed plans to make tablets based on Microsoft's Windows RT operating system in the U.S., a major setback for Microsoft's proclamation that it will leave no stone unturned in its innovation battle against Apple.

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