Every dealer, distributor and supplier is looking for the best way of getting the most from the internet. This is noticeable by the increasing number of initiatives that are being implemented.
Trial and error experiments seem to be the way of trying out different things, but since the beginning of the year, there have been several of these which, in my opinion, are not the ideal way of using the internet.
The first initiative was by US company Onsale. It announced it would be adding a division to its Website, AtCost, with the aim of using the division to sell products at cost to users. The cost price in this case is the price it will pay to its distributor Tech Data, which is in charge of the logistics of the operation.
This looks very much like a virtual dealer with a virtual profit margin.
But Onsale claims its operation is based on a business model and hopes to attract millions of visitors to the Website. It is these millions of visitors who will have to ensure the companies that are marketing commit to large scale and expensive advertising on the Web.
In the whole operation, Tech Data is virtually beyond reproach. It is selling products to a dealer and there are certainly other distributors that are selling to virtual dealers. The prices imposed by the dealers are decided solely by them - distributors have no power to influence them.
So, does this appeal to you? In my opinion, Onsale will have to do its homework again. Its shares have not only plummeted since the announcement, from more than $50 to just above $30 - which may indicate that Wall Street analysts do not think the business model has a lot of credibility - but just calculate the profit margin for yourself. Selling products at cost - even though Onsale charges between $5 and $10 as an administration fee - does not leave much of a profit margin. So all the revenue has to come from the advertising.
Let's do the calculation. In the US and several European locations, advertising is paid for in proportion to the number of page views. The payment due is based on the cost per 1,000 page views. On average, this amounts to $30. Just think how many visitors Onsale will have to attract to make this into a profitable operation.
There is also another danger. Onsale's revenue comes mainly from one source - advertisements. If these were taken away it is left with nothing. Utopia? Not at all. German vendor Siemens has already produced WebWash, a programme that filters out advertising from Websites and was designed for faster access to pages.
Another company that has a precarious business model is Free-PC. It wants to deliver one million computers free of charge within the year. Bearing in mind the economic principle of there's no such thing as a free lunch, there must be more to it than meets the eye.
Free-PC does, in fact, ask every recipient to complete a questionnaire.
These profiles are then used to bombard unsuspecting users with commercial messages that arrive as regularly as clockwork.
But this business model doesn't make sense to me - can one million PCs be financed through advertising alone?
Another initiative similar to Onsale's approach can be found closer to home. Takeitnow was launched recently in the Netherlands and makes no bones about intention to tip the entire Dutch channel into disarray by engaging in a price war.
The scenario is virtually identical to the Onsale model. All that is needed is a shop window on the internet, a sound database and outside contractors to run the logistics operation. By pure coincidence, it is Computer 2000/Tech Data in the Netherlands.
I am curious about the outcome of all this. Compaq seems to be one manufacturer that is no longer very keen on these experiments. A few weeks ago, it stopped selling the Presario model through its Websites. And a couple of hundred requests from virtual dealers for permission to sell Compaq products over the Web have been met with a firm 'nyet'. Compaq's comment on the decision was to the point: 'No added value.' If the vendor remains firm in its decision, it will be the first breakthrough for the dealer community.
But I have no faith in the so-called business models applied by Onsale and Takeitnow. The internet should be used to create added value and efficiency. By this I mean improved information - image, sound, up-to-date information, data on availability, correct pricing and so on - to a properly defined target audience. The internet allows one-to-one marketing - it is the customers who decide what they wish to see, when, and in what format.
In addition, the dealer's Website must make use of as many sources of revenue as possible - e-trade, advertisements, subscription to newsletters - instead of limiting itself to just one. If this is combined with the specialist knowledge of each individual dealer and a smooth logistics operation - ordering and deliveries six days a week - one has a business model that would be the envy of even Dell.
Jan Pote is editor of PC Dealer, Belgium.
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