To go direct or stay indirect - that's the big question for vendorso their roots with the indirect approach. as Dell continues to march forward, particularly in the UK. But its successes are not as well matched in Europe and it is unlikely that any of the main PC vendors will choose to wholly go down that route.
Steve Pavlik, EMEA professional desktop brand manager at IBM, says the channel still dominates desktop shipments across Europe and that will continue; only the UK has embraced the direct route. 'Traditionally, 70 per cent of business has gone through the channel and about half that has 'two touches' - that is, through distributor and reseller. There is still some consolidation but those routes have stayed stable over the past five years and I think they will stay that way over the next three.
Change is always hard in EMEA.'
Language barriers and a lack of communications bandwidth get in the way across Europe, says Pavlik. But in the UK, there is more acceptance of direct and mail-order selling. While Dell has nine per cent of market share across EMEA, it has 18 per cent of the UK market. Companies such as Opus, Gateway, Tiny, Viglen and Time also do well. But Europe's culture is different and any move to go direct by key vendors would be seen as panic.
'You can't just leap in. There is still a lot of momentum in the indirect channel in Europe which can't be ignored. You don't want to give the impression you've made a knee-jerk reaction,' says Pavlik.
If a vendor does decide to go direct, it should do so wholeheartedly, he says. A hybrid model is not a recipe for success. 'Compaq tried it with Presario two years ago and it didn't really work. It is very difficult to do both. You can mix it up and, if people want to deal direct, you do it, but if you begin selling direct you are dictating the price to dealers.'
That, he says, causes alienation and loyalty problems. It is a tough margin business and selling direct makes it tougher still. Compaq's recent experiment selling a low-cost Prosignia in Germany has been very interesting, he says. This is going through the channel - it is priced to sell and it has worked, boosting Compaq's first-quarter share there by 47 per cent to 10.5 per cent, behind Siemens and Fujitsu which both have about 17 per cent.
'Our preferred route is direct, but what we are about is fulfiling customer needs and giving them what they want. If they want to work with an integrator or a reseller, that's what we do,' says James Griffiths, product marketing manager for business desktops at Dell.
But Griffiths won't say if Dell will do any special deals with resellers.
'We'd sell to them as we'd sell to a user, but it does depend on the individual instances.' Dell does help resellers if it can; resellers have already gone on record as saying that they prefer to work with Dell in some cases and that Dell will give them, or their - the dealer's - customers slightly favourable terms. Even Computacenter has worked with Dell alongside EDS through the government GCAT fulfilment contract, although its policy is to reject requests from its ordinary customers to supply Dell boxes.
In these instances, the reseller becomes Dell's rival. 'If the reseller is part of the indirect manufacturer's route to market, then yes, it is a rival, but we're not averse to working with them,' says Griffiths. 'It's not up to us to say you can't use that route to a customer.'
Dell's passive attitude towards supplying through the trade seems to work, giving customers what they want. But simply copying Dell would be difficult, says Griffiths. 'The model is not just about supplying products direct to the customer. It would be a lot of work for indirect vendors to turn around and emulate what we do.'
Compaq's approach with the Presario - and with its direct operations in the US - tends to be to outsource the shipping to a second party. But this does have the potential to upset its partners, says Pavlik, because it does not fully embrace the indirect model. 'We don't have inventory sitting in our channel's warehouses,' Griffiths points out.
In Compaq's first-quarter announcement, it said it had four weeks of stock in the channel. That's probably a very conservative estimate. However, we should not get the scale of this problem out of proportion, says Dave Cheetham, business manager for professional PCs at Siemens Nixdorf. 'These things can be dealt with and I'd expect to see a clearout by the key vendors through special offers and off-the-page offers to users,' he says.
But there could be a knock-on effect if stock is sold off at much-reduced prices. The first-quarter figures are, Cheetham points out, factory gate shipments. If there is a lot of product in the channel that has to be sold on at knock-down prices, factory gates could become very quiet and hit vendor revenues hard. 'I am expecting a competitive second and third quarter in pricing terms,' he says.
Dealers will, potentially, be offered some good deals. The problem is that Dell will carry on regardless, advertising the very latest models.
What Dell has, most rivals acknowledge, is the speed to market, but does that matter all that much when users are fed up with life cycles that change too fast? Can the channel match Dell's speed?
Cheetham believes they can. Siemens, for example, has a five-day lead time from its factory and all indirect vendors are trying to cut their time to market. The build-to-order schemes of the key vendors have been slow to get off the ground, but with dealers such as Computacenter getting involved in projects with HP, IBM and Compaq, this may change.
Pavlik says: 'Direct gives you more speed to market but that's not what it is all about. Can the channel match it? I'd say that the corporate dealers can, but further down the food chain it's harder because product is touched too many times. The byword these days is services.'
It may be difficult to take all the supply chain costs out and match the direct model pound for pound, but there is the potential to sell services with the desktop sale - and services, increasingly, are what the user wants.
This, says Cheetham, is Dell's weakness. 'More clients are demanding a single source for services and are looking at the cost per seat. It's no longer enough to offer a competitive price - the successful players will have integrated services.'
Dell does have service deals with Unisys and Wang, but rivals will always question how good these services really are. The only proof is in the delivery and, as yet, there have been no memorable horror stories about Dell's service. The service issue may count for more in the corporate or global markets in the long run. Siemens, IBM, HP and Compaq have their own service infrastructures, as do many resellers.
Katriona Miller, PC product marketing manager at Compaq, says: 'There is plenty of scope for resellers to make money on desktops. The margins have been squeezed to the absolute limit, but the opportunities around them are expanding massively. Users don't have the time for day-to-day management of PCs, giving the channel the opportunity to step in and take some of that away from them.'
To some degree, she says, resellers have to offer to outsource the management of PCs. 'There is no simple answer. The channel has to show it has an understanding of the customer's needs in areas such as project planning, maintenance and hardware support.'
Vendors are all trying to differentiate their desktops as being the best products to manage with software features. While these do no harm, most resellers don't seem to think they make an awful lot of difference on the standard desktop.
More effective perhaps are the efforts made to minimise change for the users. Many users want as little change as possible which is why, says Cheetham, people should not be overexcited about Dell's ability to ship Pentium IIIs while there is indirect Pentium II stock still in the channel.
It's not necessarily what users want.
'I think the real call now is for stability - to calm things down,' says Miller. 'Change should only happen when it is absolutely necessary and only when it is going to bring real benefits.'
Services aside, there is still a lot of unrealised potential to make money on purely selling desktops insists Steve Pavlik, professional desktop brand manager for EMEA at IBM. This is an area the channel can exploit if time to market is reduced.
'The option area is where we can turn in some good business. That's one thing Dell is very good at. You start with the base box and then you sell up the options on the phone. That's extremely important to survival in the PC world.'
But in this case, only the companies involved in the building of the desktops, or acting as drop-ship agents will benefit. Increasingly, that is where resellers probably have to go with desktops, Pavlik predicts.
THE KEY PLAYERS
Like most PC vendors, Compaq has three basic desktop lines that accommodate most customers - a no-frills PC designed for the single or home office user; a corporate PC designed for network connection and a high-end workstation range that caters for the power-hungry user.
The corporate machines tend to be inexpensive to run and easy to upgrade.
Compaq has also recently added a small footprint product to its desktop lines. In the Presario range in particular, it has made use of AMD K6 chips and is likely to use K7 as well. The company also makes extensive use of the latest Intel PIII Xeon and Celeron processors.
Presario is the consumer PC products brand and Deskpro is the business desktop brand. There are three levels within both these series, although the Presario variations are just price-points within different form factors - desktop and tower - with variable expansion options.
In the Deskpro range, the EP is the value product and the EN is the corporate machine. The small footprint machine is a variation of this - the EN Space Saver.
Compaq is looking harder at direct sales in the UK and is already drawing up schemes for channel fulfilment of directly placed orders - something it already does in the US.
Dell's range is clearly divided into three brands - Dimension desktop PCs, OptiPlex business desktops and Precision workstations. Dimension PCs are targeted at home and small businesses, while the OptiPlex range offers industry-standard, managed PCs designed for reliability and compatibility in networked environments. Precision WorkStations have more power and a higher ticket value. Dell is pretty much wedded to Intel and is able to deliver the very latest processors to market very quickly - its main advantage in the business market.
The Dimension range has two subsets: the XPS T Series and the XPS V Series.
Packed with features, they use PIII, PII and Celeron processors. The OptiPlex GX1 series also comes in a number of variations and uses all of these processors to give a wide choice to the user. The Precision workstations - there are three main models - allow the option of dual PII or PIII Xeon processors. Dell is also shipping them with Red Hat Linux.
Dell is well known for its direct model, but the company also sells particular products and geographies through resellers.
IBM's main desktop range is split into three groups. The PL models are network-enabled business desktops, the GL provides a low-cost basic desktop for users not connected to a network, and the IntelliStation products are the high-end workstations.
The IBM PC 300PL range come network optimised, have their own enhanced manageability and are available mostly in Pentium III and Pentium II versions.
The IBM PC 300Gl series scales up to PIII processor but there are budget PII and Celeron versions as well. Specific versions are available for small businesses. The IntelliStation Pro products can be populated with dual PIII or PII Xeon processors.
IBM continues to sell through the channel, although it has moved towards some online sales with servers in Europe. Rather than go direct, however, IBM seems to be favouring the build-to-order route and is working with several key distributors and hybrids on its authourised assembler programme.
THE KEY PLAYERS
Hewlett Packard (HP) is the most aggressive in branding its PCs. Its consumer machines sell under the Pavillion brand, standard business desktops as Vectra, lower-end desktops as Brio and workstation products as Kayak.
In essence, this follows the same pattern as the Compaq, Dell, and IBM ranges.
Like its rivals, HP uses the full gamut of Intel processors, from Celeron and AMD K6 in Pavillion PCs to PIII Xeon processors. Various sub-divisions of these product ranges provide form factor and processor variations.
Vectra is the core business product providing the manageability and low TCO options. Vectras use Pentium chips only, but the Brio also offers some Celeron options.
Channels are segmented along the brand lines. The Pavillion range is mainly a retail and off-the-page product and the Brio and Vectra go through the business channels. The company has just started an online selling scheme only for the Pavillion PCs, which will sell at full RRP. This is an experimental scheme which may be extended to other models.
Fujitsu has two basic ranges of PCs - the ErgoPro standard business range and the ErgoPro Corporate series. The business PCs provide the value option, while the corporate models address the lifecycle and manageability angle.
Within this range, Fujitsu has products for retail as well as for the higher end of the business community. It has a different approach to branding from that of the top five manufacturers, which have different product names for the different segments, although number six in the league, Siemens Nixdorf, takes a similar line to Fujitsu.
Also like Siemens, Fujitsu has some PC products aimed at specific industries or user types - such as an educational model, for example, specially priced and packaged for the classroom. There is also an LCD PC Series that saves space by having a flat-panel LCD screen on the back of the PC.
Fujitsu does just as well as all the other market players in delivering the latest Intel technology and makes use of the whole range of options.
It sells direct but is also increasing its presence in the channel and actively recruiting resellers.
The company is most successful in Germany where it is just a few points behind Siemens in the desktop business and both Siemens and Fujitsu are ahead of Compaq, Dell and IBM.
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