OEM (pronounced as separate letters) is short for original equipment manufacturer, which is a somewhat misleading term used to describe a company that has a special relationship with computer and IT producers. OEMs are manufacturers who resell another company’s product under their own name and branding.
OEM is Similar to VAR
While an OEM is similar to a VAR (value-added reseller), it refers specifically to the act of a company branding a product to its own name and offering its own warranty, support and licensing of the product. The term is really a misnomer because OEMs are not the original manufacturers; they customize the original product.
The OEM Business Explained with easily understandable Example
When a computer technology producer manufacturers its product, for example, a computer graphics card, they will usually make two or more versions of the product. One version is distributed by the manufacturer direct to the consumer retail market, using its own branding and offering its own support.
Other versions of the manufactured product will be distributed through the manufacturer’s OEM and authorized reseller distribution channels. Usually OEM products are the same quality as the retail versions, but warranties may be different, the manual and bundled software may be non-existent, and the cables and connectors required for installation might not be included.
The OEM version of the product is sold, without the retail packaging and extra benefits at a cheaper cost to OEM partners and system integrators. Usually the product is sold in a much larger volume than an individual consumer would purchase. The OEM may purchase OEM product in bulk for mass-production of pre-built systems. This OEM business model is used by systems integrators (SI), an individual or company that specializes in building complete computer systems by putting together components from different vendors. In most cases, the SI provides the warranty on the OEM product when sold to a customer.
Other OEM business models include value-added services. This is where the OEM business would add its own software and services to customize the OEM product for its customers. This type of OEM business is referred to as VAR, short for value-added reseller. Typically the VAR would load applications or proprietary software onto systems (or bundle the software with the OEM hardware). This “value-added” system is often customized for a specific application for specific clients.