The small matter of Big Blue's strategy

How can IBM deny that selling machines direct to the small business sector will harm its channel?

The whole industry, it seems, is going micro-business mad. Almostss sector will harm its channel? without exception, every vendor is doing something to target the small business user, and IBM is the latest addition to this role of honour.

It can't be news to anyone that lots of the really small businesses in the UK (with less than 10 employees) will be happy buying their IT kit from the likes of PC World. But the news that IBM is now encouraging its retail channel to focus on the small business market has prompted a number of reactions from traditional Big Blue resellers.

The first - and most obvious one - is that IBM is turning its back on its dealers. The second is that this is the first step in a move towards a quasi-direct model, not too dissimilar from Compaq's effort.

IBM has also hinted it will make ThinkPads available to the retail channel.

This has sparked confusion and prompted accusations that the vendor's retail partners are getting all the low-end business-to-business goodies, leaving dealers to push further up-market stuff.

Of course, IBM is the great refuter. Larry Smith, head of IBM UK's consumer business, has said that most dealers are naturally 'higher up the food chain' than retailers, and would struggle to operate at the low end. He therefore denies allegations that IBM is depriving its dealers of regular business.

The real concern here is that not for the first time IBM has had a serious strategic rethink of its PC business. When the vendor announced it was consolidating its PC Company, consumer and network computer divisions under the Personal Systems Group banner, the alarm bells started ringing.

Memories of the failed consumer PC spin-off, Ambra, surfaced, and with it the idea that IBM is still a bit of a headless chicken when it comes to consumer desktops.

It would come as no great surprise, then, if IBM did stand up and say it was going direct in the low end. If the latest move to give retailers such as Byte and PC World comprehensive and exclusive backing with the Aptiva products fails, this may be the company's only option. Or it can pull out altogether, of course.

Competition in the consumer market is fierce, with highly competitive direct vendors such as Dell, Gateway 2000 and now Quantex all piling pressure on the channel trying to service the small business and consumer market.

IBM, therefore, has reason to be concerned and rethink its low-end PC policy.

But is a move towards a direct model really the answer? If that is really what is on Big Blue's mind, then the indication from market analysts is that it will continue to struggle - reports continually suggest that direct PC sales in Europe are not booming.

Neither is Compaq a great role model. It has yet to prove that its quasi-direct model works. If anything, it may just force people to shrug and say 'what the hell is a quasi-direct model anyway?'

While purists may argue that Compaq is not a truly direct supplier to businesses of less than 20 people, the fact is that it is selling direct, off-the-page and soon off a Web site. Fulfilment is not the issue here.

But IBM's business-to-business retail push will do nothing to win the company friends among small dealers. Big Blue will be treading on plenty of toes, especially with the introduction of ThinkPads to key retail outlets.

Fears that small dealers would be competing with the likes of PC World for IBM stocks as well as sales could be realised.

Many of IBM's larger dealers won't have a problem with this because, as Smith suggests, the low end is basically unprofitable for them. Dealers such as Fraser Associates have said they are not bothered about businesses ordering less than #100,000 a year. But it will hurt smaller dealers that are fighting to win this sort of business - in IBM's eyes this represents a very small proportion of its channel sales and therefore will impact little on its overall channel business. That is hardly the point, but IBM is a little desperate. At the low-end, it needs to increase volumes and it believes, with some justification, that an adequately sourced and targeted retail channel will be the answer.

One Surrey-based dealer, wishing to remain anonymous, said IBM is 'confusing the whole consumer issue', adding that selling commercial and - ultimately - specialist hardware through retail would mean IBM encountering support problems. 'How will IBM support any increase in more technically-demanding retail product? Compaq already struggles, so why would IBM be any different?' he asked.

The dealer added that the move could, ironically, force IBM down the direct route. 'If support issues do arise, IBM may look at the whole thing again and decide to keep the retail margin and sell direct.'

This is a view supported by Lapland UK sales and marketing director Martin Clarke, who said it sounds like IBM is planning direct sales in response to Compaq's decision to sell over the Web.

IBM sees retail as a natural progression for its Aptivas, and while there has been no mention of direct selling as yet, in many ways that too may eventually be seen as a natural progression. After all, when push comes to shove, IBM has a big enough brand name and a large enough marketing budget to not let a few small dealers stand in its way.