Microsoft is ramping up its finance operation to pump potentially billions of dollars into the channel as part of the momentum it is trying to build for adoption of its largest-ever product release.

Microsoft Financing announced this week at the vendor's Worldwide Partner Conference "6/50," a one-year promotion that allows customers to finance IT solutions, including software and services, for no more than $50 per month (or 50 euros or 50 pounds, etc.) for the first six months, with the balance split over 36 months. The program is aimed at driving upgrades and adoption of Microsoft Windows Vista, Office 2007, Dynamics CRM and a gaggle of new releases set to roll out in 2006 and 2007, executives said.

Microsoft's finance arm also announced new online finance application kits, proposal tool and payment calculators, partner training in using the lending feature, and a global partnership with lender CIT Group to bring the option to yet unmet markets.

The offerings are a launch of sorts for Microsoft Financing, which began operating last year—lending $500 million to 5,000 customers in fiscal year 2006—and a coming out for financing for software and services, said Brian Madison, the division's general manager.

Financing is commonplace among hardware vendors, with loans accounting for approximately 25 percent of enterprise IT hardware spending annually, according to Microsoft. But financiers have been wary of lending for software buys (roughly 3 percent of the spending), as "there is nothing to repossess," Madison said.

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"One hundred percent of customers surveyed told us they bought more as the result of financing being available," Madison said. "They purchased sooner, and they bought more services. This is something we want presented in every deal."

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Microsoft expects the program to be a multibillion-dollar operation shortly, Madison said.

"Just look at the big players doing it—IBM [$2.7 billion in 2005], Dell [approximately $1 billion]—and compare their revenue to ours," he said. "And, our available market isn't just Microsoft, but services as well. We have a larger relative available market."

'Everyone Sells More'

The announcement comes at a time when many vendors and IT distributors are highlighting new or underused finance programs as an option to commercial loan sources.

Many in the industry have attributed the trend to rising interest rates, but controlling the lending gives the vendor and reseller more control over the overall customer opportunity, said Tom Hallman, CIT's vice chairman for specialty finance, which includes the Vendor Finance division.

"If you have a loose program [commercial], you're leaving the customer up to their own devices about finding the financing and finding the right terms. It's less efficient," Hallman said. "When you facilitate it through the sale process, you have better ultimate execution. The customer ultimately gets better service … and everyone sells more."

Polls of the initial class of customers showed sales grew 28 percent program for SMB (small and midsize business) customers and more than 40 percent for Microsoft Dynamics customers. SMB customers also said they purchased nine months sooner than they otherwise would have.

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Financing also enables Microsoft and partners to fight margin reduction. The survey indicated discounting decreased 8 percent in deals where the customer financed the solution.

'Different than Selling Cash'

Madison and his team have been building an infrastructure, including alliances with lenders such as CIT, and continue to build in preparation to push adoption of the new Microsoft portfolio.

The division recently lowered the minimum deal size from $10,000 to $3,000, opening the opportunity to millions of businesses and thousands of partners, and added automated credit scoring on deals of up to $250,000, Madison said.

The process will be a transition to partners, and Microsoft has added training to bring them in step, he added.

"It's different than selling cash," he said. "It changes the decision-making process, and it needs to be presented early in the process as part of the entire package. You ask them what their budget is up front, instead of working at the end of the deal to strike a discount, but you're saying, 'How can we get this financed?'"

It may also mean speaking with the accounting and finance wings of a business in addition to business owners and IT professionals.