News

The Other Shoe Drops on Microsoft Financing

Microsoft formally ratchets up the percentage of its products that must be included in financed deals.

• By Scott Bekker
• July 01, 2009

One way partners have been weathering the deep recession has been to encourage purchase-shy customers to take advantage of vendor financing programs. Microsoft Financing had been among the most generous and attractive of these programs.

However, just like credit card terms, the rules of vendor pricing programs can change at any moment, and the company backing Microsoft can make its credit requirements much tighter.

That has happened to Microsoft Financing. On May 20, Microsoft changed the terms of its financing program to require that 35 percent of any Microsoft-financed deal must be for Microsoft software.

One of the main attractions of the program had been that even with a modest amount of Microsoft software, a partner could guide a customer to Microsoft Financing to fund a full deal that also included hardware, other software and partner services. A benefit of the approach, which Microsoft regularly extolled, was that bringing financing into the deal often made the deal much larger. When customers found they could pay for solutions out of operational expenditures rather than out of capital budgets, they'd often make larger commitments for solutions that could do everything they needed rather than most of what they needed.

"This policy clarification of including Microsoft content in all financed originations may impact some customers, but in the aggregate, this will have little impact on the majority of the customers we serve," a Microsoft spokesperson said in an e-mail statement confirming the 35 percent requirement. "Microsoft Financing uses prudent business lending standards with terms and procedures that serve our shareholders and customers."

The Microsoft spokesperson suggested that far fewer than 10 percent of deals fail to meet the new bar. According to the spokesperson's statement: "Today, over 90 percent of purchases done through Microsoft Financing include more than 50 percent Microsoft content."

Partner Protests
One partner who regularly falls into that less-than-35-percent category is Karl Palachuk, who called attention to the policy change in a post on his blog. Palachuk, a small to midsize business (SMB) consultant and author, wrote that the change is a "deal killer" and said Microsoft has "responded to the credit crunch by destroying their own financing program."

Palachuk's blog includes the details of a recent-and typical-business order where the Microsoft end was about 20 percent.