What is OEM software and can I buy it legally?

You are right to be skeptical: by definition, original equipment manufacturer (OEM) software is not something that can be resold. And yet, I also get these spam messages in my mailbox, messages where their definition of OEM is:

"OEM software means no CD/DVD, no packing case, no booklets and no overhead cost! So OEM software is synonym for lowest price. Buy directly from the manufacturer, pay for software ONLY and save 75-90%!"

That'd be nice if it were true (though I wonder how you would get the OEM software if it's not on CD or DVD), but here's how OEM software works... Imagine you invent a cool new type of laptop and want to sell it with Microsoft Windows XP, Microsoft Office and Adobe Premier pre-installed. You could call up a software reseller like PC Mall and ask for some sort of discounted price for a bulk purchase, but that'd be daft. Far better to call Microsoft and Adobe and buy the software direct from them for your product line.

What Microsoft and Adobe would sell you would be "not for resale" (you see this as NFR sometimes) original equipment manufacturer (that's you, the original manufacturer of the equipment) versions of the software, versions that are digitally bit-for-bit identical to the software included in the retail package that's sold through vendors like PC Mall, but at a very difference price point.

You would then pre-install legal copies of Windows, Office and Premier on your laptops and perhaps ship them with CDs of those applications in case customers had problems. You wouldn't include the original software boxes and documentation because, well, you never had those in the first place.

Now let's say that you buy 10,000 units of Premier and only sell 200 laptops. If you were willing to break your license agreement, you could then try to sell the OEM version of Premier on, say, eBay for 25% of regular retail and recoup some of your original investment in the bulk license. That's one way that OEM software makes it into the channels illegally.

More common, however, is that someone gets an OEM disk and simply clones it with some basic CDROM or DVDROM duplication software. Heck, you can probably duplicate the OEM disks that came with your own computer before you finish lunch today, and sell that as a "legit copy" on eBay if you don't mind that you're breaking the law and, yes, can ostensibly be arrested and thrown in jail or fined big bucks.

From the vendors perspective, OEM software -- legal or otherwise -- is bad. If they're expecting to make, say, $200 on the sale of each retail copy of Adobe Premier, then they can handle some channel discounts (y'know, the 10% grand opening sale of the local computer outlet) but having those units not sell at all because of competition from illegal OEM alternatives can really screw up their financials and, ultimately, the business itself.

Whether or not you care about the financial health of software companies, however, it should be clear that OEM software cannot be sold to customers directly; if a vendor is selling software, it's not OEM because it's violating the basic terms of that license with the software vendor. And yet, oh, so much of these OEM goods do make it into the channels anyway. Search for OEM on eBay, for example, and you'll see that there are over 65,000 matches at any given time.

OEM hardware can be a different situation, however, because so many well-known brands actually subcontract for individual hardware components. Apple Computer doesn't actually build its own power adapters for MacBooks, for example, so the factory that makes those could also introduce its own line of "MacBook-compatible adapters" that would be legitimately referred to as OEM units. Of course, most large companies add a level of quality control that the original factories in China or similar geographic regions don't offer, so it's also the case that saving 20% might not be a smart move with your hardware purchases either.

As we say in the Internet world, there really ain't no such think as a free lunch...