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Tuesday, March 7, 1995 - Page updated at 12:00 AM

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Microsoft Backs Off From Electronic Sales

Microsoft Corp. has responded to criticism from fearful retailers by scrapping current plans to sell software electronically.

But the issue that got the retailers upset in the first place is not going away.

The issue is that of using technology to sell technology. Microsoft wants to enable customers to "order" software programs through computers, without having to walk into a store or rely on mail-order companies.

In its latest rendition of that idea, the Redmond software company wanted to include a catalog of Microsoft programs with the new Windows 95 operating system, due out in August.

A customer could try out a program demonstration and, if he or she liked it, call a service center, give a credit-card number, receive an access code and "unlock" the full program from the catalog to load it onto a hard drive.

Software sellers claimed the plan smacked of monopolistic behavior.

Microsoft, they claimed, would be using its dominance of operating systems (some 80 percent of that market) to gain an advantage in applications software (programs for specific needs, such as spreadsheets or word processors). And in the process it would be cutting retailers out of the loop.

Before that argument made it to court - a common battleground for these fights lately - Microsoft backed down and canceled the plan.

"We listened," said Mike Losh, Microsoft's group manager of emerging channel strategies (new sales techniques). "Hopefully, what the (retailers) will take away from this is we listened to how this technology would or wouldn't work for them."

Losh said the decision, made at the end of last week, is unrelated to the scrutiny Microsoft is receiving from industry critics, the news media and the U.S. Department of Justice. Government investigators have reviewed alleged antitrust violations by Microsoft and, in a separate case, are reviewing the company's proposed acquisition of Intuit Inc., maker of Quicken personal-finance software.

"We wanted to do something that was right, which might be hard for some people to believe in today's climate," Losh said.

He added, though, that business factors came into play. It became too much for the company, he said, to develop the technology needed to sell software electronically while, at the same time, finishing Windows 95 and several other products.

At least one vocal critic praised Microsoft's decision.

"I think that's a wise thing to do, and I think it's going to help them as a corporation all over the world," said Alan Weinberger, chairman and chief executive of ASCII Group, a Maryland-based collection of computer retailers.

Despite the retreat, though, Microsoft will continue a project, code-named Ali Baba, researching ways to sell software electronically.

Using encryption technology, Microsoft would place coded programs onto a separate CD-ROM catalog the same way they would have been placed onto Windows 95.

Customers then could buy the catalog for a small fee (reportedly less than $10) and pay full price for codes to "unlock" whatever programs they wanted.

Weinberger said this plan doesn't upset retailers as much as the Windows 95 plan because it doesn't "bundle" the catalog with the operating system.

Weinberger also reacted favorably to Microsoft's revised plans for selling software online, through the Microsoft Network.

The network, to be launched this summer, would feature "virtual stores," where customers could tap into electronic advertisements and contact companies to order products.

Initially, software retailers complained about the plans because Microsoft said it would sell its own products directly to customers without giving retailers a spot on the network.

But Losh of Microsoft said yesterday that for now, anyway, Microsoft is playing down the possibility of running its own distribution; it just isn't set up to mail software to a mass market, he said.

He also said he's wooing retailers for the network and will even discuss business deals during a summit with retailers scheduled for midmonth at Microsoft's Redmond campus.

That news encouraged Weinberger.

"That's great," he said, adding that he was surprised. "I should talk to him. That might sound weird, but that's something I think we would do."

Copyright (c) 1995 Seattle Times Company, All Rights Reserved.

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