JAN POTE - EUROPEAN VIEW
The internet plays games with people's minds, especially those of vendors. Just about every vendor has played around with the idea of selling directly through the internet - or is making concrete plans to do so.
The internet will change the purchasing behaviour of consumers and companies in such a way that the actual sales model, based on resellers, will have to be modified. That is what they say anyway. It also appears to be the conclusion of a number of investigative reports.
There are examples to back this theory as well - after a successful prototype in the US, Apple has now set up a direct sales Website in the UK. The Adaptec Website enables users to purchase certain products. IBM has announced a commercial Website, Microsoft is implementing one under the codename Nitro, Cisco enables consumers to choose online purchases and Compaq has spoken on its direct sales intentions through the Web.
A disturbing detail, though, is the fact that every vendor continues to announce that resellers are their principal partners. Hypocrisy, a wrong assessment or fear? Time to present a sharp analysis to the vendors.
But first this: I don't think anyone has a problem with the fact that sales models change. If you read Only the Paranoid Survive by Intel CEO Andy Grove, you'll find that a Force 10 gale can dramatically change the landscape. In this sense, speculating on alternative sales strategies is perfectly valid.
However, I also seem to remember reading in the Intel top gun's book that if you don't formulate the correct solution to such a force 10 change, you will almost certainly go out of business. The way in which vendors react to the internet and the hasty conclusions they draw from it worries me.
Take, for instance, the prices of products sold online. Everyone claims that resellers are still able to offer better prices than the ones promoted on the Net. This is undoubtedly correct.
But what is it worth? Who wants to sell at lower prices than would be normal? After years of trying to get decreasing margins to acceptable levels, resellers expect a better arrangement.
If users decide to make their purchases on the internet, who will look after the after-sales service? Suppliers won't. They don't have the means to. And it's a fallacy that IT products are getting easier. They may be easier to use, but installation and integration are becoming increasingly complicated. Few vendors will be able to provide the massive support that users will demand.
In a purely economic sense, resellers don't have much choice - they will have to charge for these services. And users will not be too happy with unexpected costs. That's when the typical consumer psychology will surface: if my Sony television doesn't work, it's Sony's fault, not the reseller's. Name recognition or the brand will suffer. And how long will it be before well-informed users put pressure on prices? The suicidal competition among suppliers will have a domino effect - if one of them lowers their Website prices, with sufficient reason, the others will soon follow.
But then why should resellers go to all that trouble just to sell your products? Maybe not all products should be sold over the internet. 'But for software upgrades or licences, the internet is the ideal solution,' or so everyone says. Let's analyse this. Product marketing can be done through, among others, push technology or Web advertising.
Technically, downloading software from a vendors' Website to clients is feasible (still somewhat daunting, but possible). Financial transactions can be taken over by organisations such as Visa or American Express. Are resellers still needed in this process? Absolutely. Just look at the history of the indirect sales model. Suppliers understood that they would never, in a logistic, technical, financial or marketing sense, or even in support, be able to approach clients so effectively and with the required know-how - who is the client? What language does he speak? Is there a confidential relationship?
The partner model was the solution, and it still works perfectly. The internet only provides answers to aspects of that model. For instance, communication over the internet is only one marketing instrument. Others include mailings, regular contact, relations, trade fairs and seminars.
The support argument is not entirely applicable either.
When a person installs software, he will ask more support questions about the hardware or about conflict with other software than anything else.
Normally, a company wants one invoice for all the goods, not five invoices from five different suppliers. In other words, the majority of the parameters in the reseller model remain untouched.
Why, then, has a shadow been cast on that incredibly successful reseller model? The conclusion from this example isn't that the internet is not a good sales channel, but that the internet will be a more refined and more efficient sales method for resellers ... not for vendors.
Jan Pote is editor of PC Dealer, Belgium.