EUROPEAN VIEW
After increasing speculation, a growing number of manufacturers, including Compaq and IBM, have finally voiced their intent: 'We're going to switch to direct sales again.'
The experimentation phase is over. Whether the dealer likes it or not, the clock is going to be turned back 10 years in every European country.
If manufacturers had had good reason to do so, you could have understood it.
But if you dig a little deeper, you soon discover that the arguments put forward by the manufacturers have no foundation. The claim that users want direct service again, that the indirect channel is supposed to service users, the example of the Dell model, whereby PCs are sold over the counter quickly and at competitive prices, and the fact that many services have to be provided to large companies - all these are excuses to cover up their own internal mistakes.
Clients must be the focal point in any decision regarding a channel strategy.
Well, clients want competitive prices and a speedy delivery of up-to-date technology and services. Also, the majority of users prefer being supplied by a reseller.
The fact that Compaq and IBM have the greatest trouble with this and have been losing out to Dell, may have more to do with the high costs of their headquarters and their reluctant attitude towards channel assembly than with the work of their dealer channel.
Every day, local and regional PC assemblers prove that it's possible - state-of-the-art technology at very competitive prices and with a considerable profit margin to boot. And once again, Dell is no more or less successful than a local PC assembler who has managed to break through on a world scale.
The fact that certain computer manufacturers get extremely close to their own considerable bottom lines becomes apparent from the fact that user prices are dropped as regularly as clockwork without the reseller purchase price being cut by a similar percentage. This occurs frequently in the retail sector.
And the fact that services can only be provided by the suppliers is another stupid rule. The real reason is that money can be made by providing these services.
Instead of supporting the dealers in this, certain suppliers prefer to keep all the profits for themselves. Compaq's complete lack of clarity with regard to how the MCS (Digital's services division) will function, says more than enough. Resellers have asked Compaq not to compete with them in the field of services or hardware because once a service contract has been sold through MCS, it could, in theory, take care of any hardware sales.
Compaq's answer is extremely vague. You wouldn't exactly call it channel loyalty.
What about the internet argument? Do customers want to buy over the internet? Undoubtedly. But buying over the internet does not mean buying directly from the vendor. Buying over the net is simply an alternative form of buying - for the time being, it won't change the distribution channel.
For hardware or software, I see no real viable - read profitable - alternative.
Reseller Websites in Europe are good - they offer a varied choice, indicate clear prices and contain easily digestible information. And yes, they are still limited, and yes, they could be even better.
But instead of reverting to direct sales, Compaq and IBM would do better to help resellers develop their Websites. And the most remarkable thing is that both vendors could use channel assembly to solve their problems.
It implies that distributors or large resellers have components in stock and assemble them into computers at the request of the client, ie the principle of local assembly companies (clone assemblers), but on a large scale. At the moment, IBM and Compaq are nowhere with their plans. At first, Compaq wanted nothing to do with it and then made a sudden U-turn some time ago - no action as yet, though.
At IBM, the principle is preached but nothing is really done about it.
The conclusions are clear: either it can't do it (logistical and administrative incompetence), or it doesn't want to do it (too costly and dependent on distribution).
It's music to my ears to hear that Ingram bought the Tulip production factory. It will sound better when I hear its European boss say it will offer white boxes to resellers on which they can use their own brand names.
So if manufacturers don't want to do it, then the channel will force them anyway.
Compaq and IBM have forgotten that they have channel partners to thank for their PC business. But we should expect similar announcements from other suppliers. My advice - let them sweat it out, they'll come back.
If we'll take them back that is.
Jan Pote is editor of PC Dealer, Belgium.