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MS moves to grab slice of software distribution

Dump the wholesalers and buy stakes in new channels - the pattern is clear

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Evidence is mounting that Microsoft is supplementing the DOS (now Windows) tax by trying to carve itself slices of product distribution, while at the same time reducing its use of wholesalers. The recent cable and satellite investments are intended to ensure that Microsoft can begin to get some revenue from content delivery. At least this should do better than keeping the cash in the bank. President Steve Ballmer confirmed last week in a Handelsblatt interview that Microsoft is talking to Deutsche Telekom about an investment, but he also added that the main objective was to find further ways of distributing its products. It seems that Microsoft and Bertelsmann (AOL's perhaps tactless 50-50 partner in Europe) have offered $5.6 billion for DT's cable network, according to Der Spiegel, somewhat above the $5 billion believed to be being considered by Deutsche Bank. The question immediately arises as to how Bertelsmann could distribute AOL through such a cable network, as well as encouraging MSN. Microsoft has never liked allowing wholesalers their margin, so in a separate but perhaps strategically linked disintermediation move, rubber stamped by Ballmer, Robert Bach, the new head of the home and retail division, has decided that the company could do without distributors for products like Encarta and games. Microsoft will sell directly to the 12 largest retailers that account for 85 per cent of sales. Ingram Micro, Tech Data, and Merisel have been tight-lipped about this so far, but Ingram Micro may play lesser role by warehousing and delivering products. There are 17 million subscribers, so $329 per subscriber looks realistic for a monopoly acquisition. ®

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