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How MS OEM contracts block Windows refunds

Take it up with the OEMs, says MS. After all, they signed the MS contracts, didn't they?

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Unsurprisingly the protestors who showed up at Microsoft's offices yesterday for Windows Refund Day did not achieve satisfaction. Microsoft reps trotted out the official line that if they want a refund for the OS, they should take it up with their PC manufacturers. Indeed they should. But as Register readers will be aware, when it comes to the terms and conditions of Windows OS sales, although the PC manufacturer bears responsibility the audit trail leads directly back to Microsoft. One of the problems people attempting to get refunds from PC companies have faced is that Windows is frequently claimed to have been "run" the moment the PC is actually switched on, because the machine goes directly into an install procedure that takes the distribution files off the hard disk, leading the user into the various install choices and taking them up against the licence agreement. It's obviously absurd (and no doubt illegal under many countries' consumer law) to claim that a customer has agreed a licence simply by running the software that allows you to get as far as reading its terms, but that's the kind of claim that's being made by the manufacturers. If we look at why machines are sold this way, however, we needn't look any further than Microsoft's OEM contracts. From fairly early in the days of Windows 95 the OEM contracts specified the initial boot sequence, and squeezed-out manufacturer-specific routines from the install procedure. Some of the earliest Windows 95 machines included the ability to install Windows 3.11 or Windows 95, so then users did have a choice (of sorts), but choice is no longer offered, and Microsoft's control of the boot sequence via its OEM agreements probably precludes manufacturers being allowed to reintroduce choice - say, buttons that offered you Windows 98 or Linux as the OS. Why do you actually have to install the software in the first place? Couldn't machines just come ready set up, with the OEM licence number already entered, and then you could use the add/remove function to tailor bundled software to your requirements? Well you could, if Microsoft's licences allowed it. PC OEMs have expressed an interest in doing this, but have been told by Microsoft that it's forbidden. The reasons for this are simple enough. Microsoft wants users to register with Microsoft in the first instance, and then to have the ability to pass the registration on to its OEM customers. This was a major factor in the tightening of the rules on boot sequence, flushing-out any PC manufacturers' registration procedures, and when online registration of new Microsoft software becomes compulsory, you'll see why Microsoft has done this. Microsoft intends to own the customer base, it won't let the PC manufacturers have it. Then there's the matter of why it's so difficult to buy a PC without an OS anyway. Many people who are buying PCs with Windows 98 on them now will be replacing PCs they bought a couple of years ago with Windows 95 on them - so how come they can't just transfer the licence? Microsoft has been concerned about this possibility in the past, as can be seen from internal documentation revealed during the trial. If the cost of Windows gets too high, then the Microsoft share of revenue from each PC sold will become too much of a burden to customers and OEMs, so there might be a revolt. That has been one factor that's helped limit Microsoft's price levels, and the sort of reduction a customer might get if they could buy a machine without Windows on it is small enough (the few refunds made have been between $25 and $50) for it to be not worth hassling for, for most people. For the OEMs selling $500 machines, however, $50 is becoming significant. But it's also been important for Microsoft to tie the software as closely to a particular piece of hardware as possible. The distribution files on the hard disk can't be easily moved to another computer, and can't, without some engineering and a breach of the licence agreement, be used to install Windows on that computer. Microsoft is now prohibited from charging OEMs a Windows licence fee for every machine they sell, whether it ships with Windows or some other OS, but that change in Microsoft contracts was made in 1995, and the company is clearly still getting a fee for practically every PC that ships, because practically every PC comes with Windows on it anyway. That's partially because of Microsoft pressure. OEMs are nervous of offending MS and thus having their discount structures interfered with and their agreements tightened some more. But it's also because of the simplicity (from the OEM's point of view) of just offering one OS, and because there still isn't a real competitor to Windows in the mass market. So the basic Windows refund problem is that it can't go much further than publicity stunt level until there is a real competitor. Given that $25 is neither here nor there, we're not going to see a mass user revolt, while for the PC manufacturers the pain-gain ratio will remain tilted in Windows favour, unless of course demand for, say, Linux in the consumer market forces their hand. As some of the demonstrators yesterday pointed out, the issue is choice, not money, and it won't be solved until the PC companies start offering choice. ®

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