OEM software -- deal or deception?

Infopackets Reader Pete N. writes:

" Dear Dennis,

My email box has been bombarded lately -- as I'm sure most of your readers have -- with solicitations for OEM Software (sans the box and manual) available at ridiculously cheap prices. The deal is very tempting, but can you tell me the pros and cons of buying and using this stuff? I find it hard to believe that the only difference [when purchasing OEM software] is that you don't get the manuals and boxes. Can you explain? "

Side note: OEM is an acronym which stands for Original Equipment Manufacturer.

My response:

Anything that sounds too good to be true usually is. The fact that your mailbox has been bombarded with these offers tells me that these messages are most likely spam.

I have seen these messages before, but my mail filtering program usually catches them before I have a chance to pay much attention to them. Nonetheless, I have had a number of people email me a similar questions, so it's worth understanding what OEM software is and what the legalities are.

After some poking around Google, my understanding is that OEM software is only legal if you buy a new computer or new computer hardware (with a few exceptions). What is legal and what is not depends on the manufacturer's OEM EULA (End User License Agreement).

For example, Microsoft's OEM License Agreement (post January, 2001) states that their OEM software can be sold with any non-peripheral hardware:

" As a member of Microsoft's System Builder program, I have access to the official terms and conditions of OEM software distribution directly from Microsoft. In short: before January 1, 2001, MS OEM software and hardware had to be issued and preloaded with a complete system.

After January 1, 2001 all that needs to be sold with the software is any non-peripheral piece of hardware. This could include a modem, network card, memory, processor, etc. The key sentence in the agreement is 'MS grants to you a non-exclusive right to distribute each Software Unit, provided it is distributed accompanied with either a fully assembled computer system or non-peripheral computer hardware component.' The key word here is either. " (Source: ResellerRatings.com)

OK. So, why is OEM software sell so cheap?

I've always wondered that question. And, after some more Googling, I found a very clear and concise definition of OEM software:

" [First and foremost], OEM software is software sold under special agreement for the purpose of bundling with hardware. Computer vendors are typically Original Equipment Manufacturers. There is also a market for OEM software sold unbundled at very low prices, [however, this is almost always] in violation of the agreement the OEM has with the software company.

OEM software is usually not accompanied by regular packaging, such as a box, and may come without manuals. OEM hardware is similar to OEM software - sold to computer makers at lower prices, without the packaging, etc. The warranty for an OEM version may be different than it would be otherwise [if not sold as OEM]. " (Source: Wlug.org.nz)

So there you have it.

Update 2004 / 03 / 02: This article has been updated. Click here to read!