Internet gains

Whether it's selling direct or just simply posting information on a website, vendors are all going online to remain competitive. Simon Meredith compares their different approaches.

Over the past two years, two issues have dominated debates about the future of the channel - the direct model and the internet. In many ways, the two are intertwined. Dell now claims to be doing business worth $20m a day on the internet and Compaq is about to go direct over the web with its Prosignia desktops.

Vendors are being driven by competition towards a lower-cost model, and that means taking people out of the supply chain. Yet most vendors are claiming they are still loyal to the channel, that they believe it is the right way to deliver their products, and that they will not desert the channel for direct internet-based selling.

But at the same time, the vendors are all using the web to sell their products - they have to. If they don't, they will lose potential sales.

Slowly but surely, businesses and consumer users are finding that they are able to order products via the internet direct from the vendor's site.

The way that order is fulfilled is another matter.

PC Dealer decided to take a closer look at the channel and see where all the leading vendors are today, in terms of on-line ordering and fulfilment, and what services they make available to resellers via the web.

COMPAQ

What really matters, is not whether the company sells direct over the web, but what the customer wants, according to William Knocker, director of ecommerce at Compaq.

"Quite frankly, the issue is the effectiveness of supply chain management. What the customer wants is what the customer wants - consumers simply demand efficiency. From Compaq's point of view, that's what we need to look at - supply chain efficiency," he says.

Following its tribulations earlier in the year and the looming and continuing threat of Dell - its main challenger for the number one spot in the channel - the company has been looking hard and has decided to put a direct option on the web for Prosignia machines at the end of this quarter.

This should have a significant impact on the reseller community, although previously, Prosignia customers would have had to buy through the channel, even if they went mail order. Compaq could argue that, if the company does not make available the direct option, users might buy another brand - most probably Dell.

And Knocker points out that adding the web option does not make the rest of the supply chain redundant overnight.

"The web is a technology that can vastly improve supply chain management. But you supply products using your whole infrastructure and if it can be improved by using the web, that's the right direction to move in," he says.

"If a customer merely wants to undertake a transaction, we will provide that option. We have just started doing that with smaller customers. It's more efficient if you can reduce the number of people who handle the box."

He believes the Prosignia web sales channel will appeal mainly to smaller buyers who know what they want and look for the quickest way to buy the product they need. There will be no limitation to how many machines that can be ordered in this way, but Knocker claims that any customer wanting to buy more than one or two machines won't use the direct internet route.

The channel will still retain almost all of the Compaq cake.

"Like all vendors, we need the value-added services that our channel partners provide. The trick is how we can bring those two elements together. To progress, the direction we need to go in is not just in placing orders with Compaq, but placing them with resellers, and with resellers placing them with Compaq and with distributors - placing orders in all directions in fact," says Knocker.

"The company will also aim to do that in a smart way. That's the route Compaq must take," he adds.

This is a clear enough statement. What Compaq is aiming for is a completely electronic ordering system in which the number of touches is reduced to an absolute minimum, although the business may be channelled through a reseller and a distributor.

The automation of logistics has already started to take place. Distributor Tech Data, for example, has signed vendor-side agreements with companies such as IBM and reseller-side agreements with resellers such as GE Capital.

Drop-ship and private label services are already available from distributors, as are straight-through EDI links.

This will now carry through to Compaq. Much rides on whether or not the vendor plans to do its own shipping and logistics. What Compaq and other vendors now envisage is a completely electronic channel from the reseller up and, in many cases, from the user up. In other words, many users will always place orders electronically and if they don't, their reseller will.

"We are in a perpetual state of transition. Our plans are there but we obviously need to take a closer look. We have no announcements planned as yet," says Knocker.

He admits that the company is shifting from being indirectly focused, to a position where direct is an option for Prosignia buyers at the end of the quarter, and almost certainly in the future for all Compaq products.

Knocker says only the Prosignia will go direct on the web. "This is Compaq's leading edge line. The stable-line of Deskpro desktops stay channel-bound as do the Pro-signia servers - for now."

And the vendor is continuing to run its Compaq Connect lead passing extranet service. Leads from a Compaq call centre are routed to resellers who can see through the site what availability of stock there is at distributors.

The service is available to every reseller but they don't all take it up claims Knocker. "A number have looked at it but the large corporate dealers don't want the SME type leads it generates."

IBM

For a company that is increasingly focused on ecommerce, IBM is not doing much business electronically with its customers and resellers. According to Nick Davis, hardware specialist at IBM, right now, not a single thing can be ordered via the web or through EDI links.

Instead, the company tries to route potential customers who visit IBM's personal systems group and small business website areas to reseller websites.

Customers can look at products online, search for IBM resellers in their locality, and examine their accreditations. They can then hut link into the reseller's own site but not into any special IBM area - only into wherever the link is designed to take them.

But this is not the case in all countries. IBM sells PC products direct in the US via the web but there are no plans at present to do this in the UK. Davis claims IBM remains committed to the channel. However, he admits all this could change. "The market is constantly evolving and I would never say never to those decisions. I think we are probably going to see significant changes at some stage soon."

IBM is not going to be able to ignore for much longer what rival vendors are doing, unless the company is seeking to exploit model changes to meet its own ends, and Davis also claims that there is a small exodus of Compaq resellers approaching IBM because they are disappointed with the company's model practices.

Resellers have a dedicated area on the IBM website. The Partner-Info section is packed with product information, online training, marketing materials, presentations and even complete seminars that can be downloaded.

DELL

Most people know what Dell does, and according to the latest figures, the vendor sells more than $20m worth of equipment each day over the web. It claims to be the number one PC vendor in the UK, and figures by research company IDC seem to back these up, giving the company an 18.7 per cent market share and a 43.3 per cent year-on-year unit growth.

In Europe, the company takes $5m per day and this figure is still growing.

Online sales now account for more than 30 per cent of Dell EMEA business.

As well as the straight web-based ordering service, Dell runs a programme for businesses called Premier Page. The scheme creates personalised internet pages for regular buyers and the company claims to have up to 3,500 pages set up for its EMEA customers under Premier Page.

If there is one single factor driving vendors to look hard at direct selling via the web, it's the success of Dell online. The only question that remains is whether its rivals are moving fast enough.

HEWLETT PACKARD

There is no way to buy direct for business customers on Hewlett Packard's website unless they want to buy Pavilion PCs that are designed for the consumer market. HP has been testing its commerce centre, a direct online selling programme, for the past six months.

Customers can place orders for PCs, servers, notebooks, printers and other products through the commerce centre on HP's website, but those orders will always be fulfilled by the channel. Once the order is placed, HP gives the customer a selection of six prices and dealers that are made available by participating resellers. The buyer picks one and the information is then passed straight to the dealer.

Borel Setten, UK marketing manager for the personal systems group at HP, says he cannot reveal how much business the vendor generates through it.

All HP resellers are invited to participate, but not everyone does. "It tends to be second-tier resellers as the corporate guys have their own sales forces," says Setten.

On a separate level, HP operates a scheme called Enterprise Solutions Now (ESN), offering private intranet systems to corporate customers. It provides this in conjunction with reseller partners. ESN intranets are set up either on HP's suggestion or as a consequence of an original tendered proposal.

"The ESNs don't always include ordering facilities, but many do," admits Setten. "HP covers the set up and running costs."

There's a special sector for resellers on the HP website called Connect Online (CO). Setten says: "CO is a huge information repository, with details of all the latest products, promotions, presentations - anything that might be useful for resellers."

SUN MICROSYSTEMS

Jon Tutcher, marcomms manager at Sun Microsystems, is quick to point out that 75 per cent of the vendor's shipments go through the channel.

"We are encouraging our resellers to sell to their customers electronically, and 60 per cent of our orders from resellers are taken that way. However, the customer can't do that right now - we don't see that demand."

Nor is Sun likely to - its products are not really suited to online ordering services, although there is a lot of detailed product information available on its website. Users can certainly assess the options.

A small number of Sun resellers have EDI links with the company, but they can't order via the web at present. Tutcher does not rule out the possibility that some customers will be able to place direct orders with Sun via the web, but this will not affect the amount of business through the channel.

He says: "Probably within 18 months or so it will happen more on the web for customers who want to deal direct with us and know what they want.

It's alright for Dell to sell via the web, but our top-end products in particular are highly complex and typically going into multi-vendor environments - that's why 80 per cent are going through the channel."

Sun receives 60 per cent of its orders from resellers electronically because Tplc, its master agent, places just about all of its orders that way through EDI. And there are only a handful of the 300 UK Sun resellers that Tplc does not manage for the company.

Tplc itself plans to introduce web-based stock checks and ordering for resellers. It also plans to make that available for reseller customers.

The company already has an EDI system running, known as ECX, which some resellers use.

Like most vendors, Sun seems to believe that a certain amount of writing is on the wall. Tutcher says: "We see a whole range of different things happening with the channel and the ASPs. The market is becoming much more complex than it was 18 months ago."

He adds: "With more companies and aggregators out there, downstream it will become more complicated. What we are telling resellers is to focus on their value-add and their differentiators."

TOSHIBA

Toshiba is presently aiming to change its model of radical selling. One significant change is the opening of the Online Gateway to PC Purchasing scheme. The scheme does allow users to buy online, but only through a reseller's website. Users are bounced into the reseller's online ordering system from the Toshiba site.

Potential buyers are directed to a list of reseller websites when a buy online button appears on the Toshiba site. From there, they are taken into a Toshiba dedicated sector of the reseller's site where they can view prices and availability of products and place orders for next-day delivery. That is a stipulation of the deal for the resellers - they must offer some stock availability and delivery on the following day.

The company intends to sign up as many resellers as possible to the scheme, providing they meet the set criteria. Action Computer Supplies and Dabs Direct are already linked on the Toshiba site. Other resellers will be added soon.

Con Mallon, marketing manager for Toshiba, claims that the company has decided to offer this service because customers want the option of buying online.

He says: "It's about choice. Customers have different preferences for how they would like to buy various Toshiba products - in person, over the phone or on the internet. The website is now more than just an information service. It offers direct access to Toshiba products through our reseller network."

MICROSOFT

Microsoft does not believe in selling direct online. The company has an extensive website which details all its products and services, but representatives for the software giant insist selling direct does not, and will not, happen.

Unfortunately, no one at Microsoft UK was able to comment on the subject to PC Dealer, other than to reiterate the fact that Microsoft will stand resolute on this matter.

"Microsoft will not provide all these different services - the company believes in getting specialists to do that," said a representative - meaning that Microsoft won't be selling via the web but the company will advertise its products and take leads - perhaps orders as well one day - and that it will encourage its channel partners to use the web to sell and trade.

As far as resellers are concerned, there is a partner sector on the Microsoft website, where the company's Solutions Provider Partners have their own exclusive area of information, through which about 60 resellers receive all kinds of information about Microsoft products, promotions and business leads. But as with other customers, resellers can't actually trade online with Microsoft.

NOVELL

ShopNovell has been up and running for some time through the Novell website, but there is a hitch - at the moment, customers can only buy through it in the US.

Although the site allows users to place items in a shopping basket and place an order, all products are sold by Novell at full retail price with no discounts and no services.

When ShopNovell is finally made available to UK customers, it will follow the same principle, according to Peter Joseph, corporate business strategist at Novell.

"At the moment, there is no real timescale on plans to bring the ShopNovell to the UK, but it will certainly happen within the next year or so," he says.

However, Joseph concedes that the idea is to refer the customer to local resellers. "People must understand that Novell's model for product distribution today is still very much focused on the channel.

He says: "Product can be shipped direct - but only if customers are willing to pay full retail price."

The ShopNovell site has a partner locator button that enables customers to find the nearest Novell dealer and make contact with them. "The whole point of this scheme is that we want to engage the channel and they have to be able to add value and deliver the package," adds Joseph.

THE KEY PLAYERS ONLINE AND OFFLINE

COMPAQ

Now: Launching online sales for Prosignia at the end of this quarter.

Future: Looking at extending the online option for other ranges.

IBM

Now: No online options, only links to resellers.

Future: No immediate plans but nothing is ruled out.

DELL

Now: Everything available online with personalised pages for businesses that want them. Selling $5m per day online.

Future: Sure to extend its products online.

HP

Now: PCs and notebooks can be ordered online but orders are fulfilled through the channel. Enterprise customers can have personalised intranets with reseller linked in.

Future: No additional plans at this stage.

SUN

Now: EDI links set up with some resellers but no web ordering.

Future: Web ordering is possible but not planned.

TOSHIBA

Now: Has just launched online ordering scheme but orders are placed on dealer sites and fulfilled by them as well.

Future: Extension of the dealer-routed service.

MICROSOFT

Now: Just like IBM, there is no way to buy online - only to find and refer to dealers.

Future: No plans to change policy.

NOVELL

Now: Can't buy direct in the UK but customers can go through ShopNovell in the US - but only at full RRP.

Future: ShopNovell scheme will probably come to the UK within 12 months, but no definite plans.