Is part of the channel going grey?

My two daughters have a magical way of turning my jet-black hair grey, but I can take solace in knowing I will not be the only one who is going grey.

Sue Harper of Microsoft Canada – who is not going grey – is trying to stop her top partners from going grey or worse pulling their hair out in frustration over grey market activity.

The channel in Canada is saddled with a real dilemma from IT brokers selling software at unbelievable discounts.

This puts the pressure squarely on Microsoft, other software vendors, the distributors, partners and, to a lesser degree, customers.

Because of our close proximity to the U.S., Canada is subject to a lot of grey market activity. The worldwide grey market is at US$40 billion and it averages a US$5 billion loss a year for software makers, according to a report from KPMG and AGMA.

Harper said the grey market has not increased from last year. However, it hasn’t decreased either. Harper isn’t really happy with the progress, but she and her team at Microsoft are trying to do something about it.

There will be a new billing system in place for OEM distributors: Invoicing software royalties to distributors will now be on a just-in-time basis. This will seriously cut down on deadstock. In the past, it was up to the distributor to dispose of deadstock. Inevitably that deadstock made its way into the market.

Payment for certificate of authenticity (COA) labels will now be taken care of by authorized replicators (usually a printing company).

Harper believes this will lesson the pricing pressure on the channel.

But she also sees the rise of brokers who are setting up shop just to sell product with no added value becoming a real problem.

These brokers sell hard disks and other components along with operating system software obtained from sources in the U.S.

This leads to loss of sales for Canadians. Some of these offerings are co-bundled with counterfeit product. Some have a legal COA labels on a bootleg disc or vice versa. Some of the software is tampered with, she said.

It is here where the customer can get squeezed. This looks awful for a reseller who sells quality products along with counterfeit. It hurts the reputation of the reseller along with potentially putting the customer at risk.

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Here is where I believe the customer should be careful. Customers should be vigilant and demand the software be legit and procured from reliable sources. They should also understand that it may cost more, but in the end they will have the real deal.

Let’s face it – the real stuff comes with challenges for both the VAR and the customer. This is not a fake Gucci handbag or Rolex watch.

Focusing on saving pennies while potentially putting your IT environment at risk is just foolhardy for the customer.

Harper has been scratching her head trying to figure out how these brokers are doing it. One legal way is for them to acquire rebates from other hardware products and then pass those savings onto the software. Another possibility could be some kind of GST fraud.

But, more often than not it is illegally obtained. One way is to have an insider slide software disks underneath hard drive cases and shipped them out on a skid.

Since Microsoft has more than 280 distributors worldwide handling its products they cannot prevent inside jobs.

Illegal or legal, it is putting lots of pressure on the channel to compete.

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Jim Love, Chief Content Officer, IT World Canada

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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