EDITORIAL - Another sales model bites the dust

When people in the channel say things are looking bad, you tend to take it with a pinch of salt. Not because they aren't telling the truth, or at least the whole truth, but because channel players would never admit to doing well.

They could have won £6 million on the lottery the day before and they'd still be moaning about the long hours, the backstabbing nature of vendors and shrinking margins. It's not in their nature to admit to making money except, perhaps, to shareholders.

However, when Dataquest starts predicting the death of channel assembly you tend to take notice because suddenly there's the chance of real turmoil on the horizon. Not that we thrive on adversity, but because channel assembly is big business for certain distributors.

According to the doomsayers at Dataquest, build-to-order and contract manufacturing are the future of the PC industry, while channel assembly is a dead end. PCs priced at more than $1,000 will be built-to-order by the vendor, while entry-level PCs will typically be moved to contract manufacturing.

Putting numbers to the gloomy horoscope, the research giant predicts that by 2002 - assuming the world survives the millennium - 32.8 per cent of PCs in the US market will be built-to-order, up from 22.8 per cent in 1998. Contract manufacturing will account for 32.2 per cent, up from 20.6 per cent last year, while channel assembly will nudge its way up to 7.3 per cent of shipments, from five per cent last year. The traditional build-to-stock model will also fade fast also by 2002 to about 11 per cent of the market.

The reasoning is simple: the longer stuff is stored, the more it's costing you. That damnable Dell has puts the skids under more than just PC pricing - because its operations are based on build-to-order, it holds very little inventory and expensive stockpiling costs are rare. While Compaq and Hewlett Packard will admit to experimenting with build-to-order strategies, there's no chance that they'll admit to being forced into it by Dell's success.

What Dataquest is saying about channel assembly is something that has been evident to channel watchers for some time now. Just look at the way Ingram Micro has expanded its traditional assembly operations into building white boxes. Even IBM, which relies massively on channel assembly, can't be expected to maintain its support for this system in the face of the massive losses made by its PC business unit. Also, the vendor is now tied so closely to Dell following the recent multi-billion dollar components deal that the future of IBM and PCs is more grey than clear.

There are undoubtedly those out there who will continue to advocate the channel assembly model - 7.3 per cent in 2002, according to the Dataquest report - but it's not where the smart money is going to be. How can you advocate a system for building PCs that not even the leading PC vendors are sure about anymore - Compaq and HP aren't experimenting with build-to-order for the good of their health, you know.

Now that Dataquest has officially carved RIP on the assembly game, feel free to check out dealing in some of the big money-spinners for the rest of 1999 - e-commerce, year 2000 consultancy, Teletubbies ...