Startups unsettle traditional dealers

Internet Channel dismisses OnSale and Zygonet as unrefined.

A wave of startup companies are introducing initiatives to challenge traditional channel models, as distributors and Vars struggle with how to incorporate e-commerce into their business models.

OnSale, based in the US, has introduced an aspect to its internet site called atCost which claims to sell computer products at wholesale prices.

In fact, a 2.4 per cent payment processing fee, shipping fees, applicable sales taxes and a $10-per-unit transaction processing fee are added to the wholesale price. However, atCost has caught the attention of established UK distributors and resellers.

Joe Breen, customer services director of Ideal Hardware, said: 'I'm not so concerned about the large players that have been in the business for 10 years or so, but more the upstart distributors that are innovative.'

He added: 'Distribution is a prime example of an industry in which you can have just a cool front end and the value add of a cheap price tag and you'll get business.'

According to Breen, that leaves volume-fulfilment businesses vulnerable, but he said distributors such as Ideal, which provide additional services such as expert product knowledge and added credit, should have little to fear.

CHS Electronics is also monitoring OnSale and fellow internet US wholesaler Buy.com, but Peter Rigby, marketing director of CHS, disputed they would have much of an impact on the UK channel.

'It is possible that new sites like this could be successful locally, but I don't believe they will because customers buy on more than price, especially large accounts that normally trade on an EDI level that has taken years to mature,' Rigby said. 'We tend to treat at-cost sites like this with scepticism but we'll see how they go.'

Jim Rousou, chairman of the Elcom Group, was similarly dubious about internet wholesale sites. 'Because they also sell a lot of peripherals, the average value per order is probably about $150 which, by the time you add charges such as shipping to the supposed at-cost price, is not going to be that different to what other retailers and resellers are presenting.'

Rousou also argued that UK buyers were not as internet-savvy as their US counterparts.

'The issue is the willingness of consumers to buy anything significant over the Web rather than just using it as an information tool,' he added.

'My opinion is that the US is between 12 and 18 months ahead of UK in terms of that willingness.'

Andy Gass, deputy managing director of Computer 2000, agreed, saying the smaller size of the UK market, coupled with the adoption of e-commerce by the mail order industry was likely to stifle the development of such sites locally.

Nevertheless, he conceded that C2000 would consider supplying products to organisations prepared to give it a go.

'In principle, we would be prepared to get involved with something like atCost,' Gass said. 'We sell at a competitive price and it's then up to the reseller what price they sell at.

'We'd need to be convinced that it was a viable business option before entering into a business relationship with them and I have doubts as to whether that could happen in the UK market.'

Meanwhile, Zygonet.com, which launched in the UK three weeks ago, is also making an impact with local distributors and Vars, according to Andrew Jenkins, sales manager for the site.

He claimed that 150 UK distributors are already subscribing to Zygonet.com, which he described as an introduction agency for distributors and resellers. An estimated #1.5 million worth of product requests from resellers have been logged on the site so far, Jenkins estimated.

Zygonet.com enables Vars to log a request for products using drop-down menus and asking for responses to a nominated e-mail or telephone location.

Distributors with products to sell follow a similar series of menus and are matched up with a list of resellers requiring those products. Resellers choose the best quote and contact the relevant distributor.

But distributors that spoke to PC Dealer were cautious in their support for Zygonet.com. Breen said: 'The question is how long does it take from the time the reseller posts the request to when it gets a response. They want to find the data immediately. They've always got a user bashing down their door wanting the product now.'

It remains to be seen whether non-traditional Websites will work in the UK. What is certain is that they are on their way and it is up to the channel to compete with them.