MICROSOFT EXPANDS ELECTRONIC SOFTWARE DISTRIBUTION VIA INTERNET

Defines Framework for Channel Involvement at Conference

REDMOND, WASH. - MAY 6, 1996 - Microsoft Corp. today expanded its efforts
in electronic software distribution (ESD), announcing a set of
requirements for distributors and resellers interested in distributing and
downloading Microsoft software to end users via the Internet. The
requirements will be presented May 8 in San Francisco at an industry
conference on ESD attended by numerous software publishers, tools
developers, resellers and distributors.

Developed as part of a pilot project in conjunction with resellers to test
the enabling technologies and business models necessary to facilitate ESD,
the requirements create a framework for the ESD process, from order
placement to delivery and installation of the software on the user's
computer.

"Microsoft wants to be where our customers want to shop," said Johan
Liedgren, director of channel policies at Microsoft. "Today, that includes
the Internet as well as our traditional channels; therefore, we are making
our products available to channel partners who want to distribute and
download software to end users directly from their World Wide Web sites.
The open framework for ESD represents an agreement between Microsoft,
technology providers and the channel partners for how we work out issues
relating to reporting, accountability and returns."

With the increasing interest in the Internet as a vehicle for electronic
commerce, software has become one of the initial focal points of consumer
interest. Because software already consists of electronic bits, it can be
both demonstrated interactively on the Internet and downloaded on demand.
A recent Yahoo! and Jupiter study of Internet users found that software is
the best-selling category on the Web; 14 percent of those queried had
purchased software online.

"It's clear that customers see the potential in the Internet as a shopping
environment for software," Liedgren said. "Some customers will want to be
able to download the software, not just call an 800 number or drive to a
retail store. We want to give them that option."

Microsoft is currently making the requirements available to resellers and
distributors, to more precisely define the "best practices" in
facilitating the ESD process. "If every vendor and reseller chose a
proprietary way of handling reporting and returns, it would take us years
before we found efficiencies with ESD," Liedgren said. The following are
among the topics covered in the requirements:

* CUSTOMER RIGHTS, including customer privacy. Users should be presented
with options relative to how their information is used, if at all, by
vendors, distributors and resellers.

* TRANSACTION SECURITY, specifying a separate process for downloading the
software and the appropriate decryption key.

* PROOF OF PURCHASE, including not only purchase data but also contact
names for both reseller and distributor. This would be used for
reinstallation, such as after a hard-drive crash, and for return
purposes.

* RETURNS, which Microsoft will allow up to 30 days after the customer
obtains the software, under the standard Microsoft Satisfaction Guarantee.
This also includes a mechanism for verifying that the customer has
uninstalled the product.

* TRANSACTION AND SALES REPORTING, to verify that a sale has taken place
and that all parties in the sale - vendor, distributor and reseller - are
compensated.

Liedgren emphasized that the pilot project confirmed Microsoft's initial
perspective that Microsoft's existing distribution model involving
distributors and resellers is appropriate for ESD. The value of the
channel extends beyond merely fulfilling customer demand. "Much of the
value provided by distributors and resellers is present regardless of
whether the product is delivered physically or electronically," he said.
"We also hope the channel will go beyond just adding ESD to the sales mix,
and use ESD as a platform for creating innovative services not possible in
the packaged-product paradigm, such as loyalty programs, electronic
coupons, virtual bundles, pay-per-view and subscription programs.

"Focusing on open channel requirements spurs the creation of an
infrastructure that can be used by all vendors," Liedgren added.
"Distributors and resellers will be able to make their own technology
implementation and integration choices for front-end and back-end
solutions and be able to develop technology over time to take advantage of
the latest innovations. Our requirements focus on ensuring customer
satisfaction and on providing a consistent means of tracking and reporting
sales, just as in the packaged-product environment."

STRATEGY VALIDATED

Microsoft's open approach to ESD has been validated by industry analysts.
Allen Weiner, director and principal analyst of online strategies for
Dataquest, said a channel-centric approach is the right one for ESD. "The
Internet, with electronic software distribution, is an extension of the
channel's current selling avenues rather than a replacement," Weiner
commented. "Microsoft clearly understands that the channel adds key
elements to the sales mix, including marketing, credit and collection,
technical support and a virtual sales force that Microsoft could not hope
to duplicate."

Liedgren added that issues surround ESD that limit its current application
as a distribution environment. The two most critical are bandwidth for
data delivery and perceived security concerns for credit-card transactions
over the Internet.

DATA DELIVERY. Today, with a 28.8 Kbps modem, it takes nearly 90 minutes to
download Word for the Windows 95 operating system. With integrated
services digital network (ISDN) technology, that time is reduced to 32
minutes. Other emerging technologies, such as cable modems or satellites,
will reduce downloading time even more (to approximately 12 seconds for
the former configuration and six seconds for the latter). All these
technologies are still in the early phases of deployment and testing,
however, so it will be some time before any of them achieve significant
levels of penetration into the home.

TRANSACTION SECURITY. While Microsoft's experience in the pilot project
indicated that ESD customers were comfortable with electronic
transactions, Liedgren acknowledged that broader public perception
regarding credit-card security is mixed. "It's an issue that everyone in
the industry, not just Microsoft, is concerned about," he said. "We
believe that current credit-card security measures are actually quite
good, and that the industry's effort to create a single secure exchange
transaction (SET) standard will be further evidence that electronic
credit-card transactions will actually be more secure than current
paper-based or live telephone transactions."

AVAILABILITY AND PRICING

The requirement documentation for resellers and distributors is now
available from Microsoft. The process of testing and validating resellers'
ESD implementations will vary, but resellers are expected to be online
within 30 days. Pricing for the electronic versions of Microsoft products,
as with packaged products, are set by individual resellers; Liedgren said
the cost savings resulting from the elimination of packaging and
documentation for ESD versions are not expected to be significant, so
prices are unlikely to differ greatly.

The initial products to be offered via ESD will include Microsoft Office
for Windows 95, Word for Windows 95, Microsoft Excel for Windows 95, the
PowerPointR presentation graphics program for Windows 95 and Microsoft
Works for Windows. Additional Microsoft products will be made available as
soon as ESD versions are complete for sales and support tracking needs.

Founded in 1975, Microsoft (NASDAQ "MSFT") is the worldwide leader in
software for personal computers. The company offers a wide range of
products and services for business and personal use, each designed with
the mission of making it easier and more enjoyable for people to take
advantage of the full power of personal computing every day.
 
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