Brand is important, but what users consider acceptable on the desktop a mounting threat to the old channel model. There are two main options for traditional resellers - become a vendor agent or get into the assembly game yourself. appears to be changing. In recent years, direct vendors have improved awareness and credibility by stealing margin from indirect manufacturers and starving the channel of valuable income. Traditional resellers have put up strong resistance, despite price competition and shrinking margins, by finding alternative ways to add value.
But for every success story there are 10 tales of woe. Struggling to compete with the direct selling model championed on the internet, many dealers are opting for services over shifting boxes. After all, why sharpen the knife that's going to cut your own throat?
John Shepheard, sales director at direct vendor Dan Technology, says: 'What customers have been telling me is that it doesn't matter what the big manufacturers are doing with the channel because the buyer will decide in the end. Corporations will make their purchasing decisions on the attributes associated with the brand.
'Previously, they would have bought Compaq and IBM because they were stable and reliable - attributes the direct channel didn't have. But the likes of Dan, Gateway and Dell have earned their stripes.'
Market figures would appear to back up this assertion. Dell does well in the UK corporate market, which accounts for about 70 per cent of its sales, and other direct vendors ride on its wave. According to Shepheard, the reasons for this are clear: 'Dell has blazed a trail for direct vendors into corporate business and organisations will want to buy more direct.
They know we will be there when they need us and they can have a direct relationship with us.'
Most PCs are built from a standard set of components, he says - it's no black art. And corporates like the idea of a straight deal that gets the job done. Direct vendors can also be more flexible and responsive to technology innovations, Shepheard believes - they can alter specifications almost up to the moment a machine is sent out.
Once they have established credibility, direct vendors are very much in competition with resellers. Colin Collier, managing director of Carrera, another direct vendor with a reasonably established brand, is proud of the broad range of services the company offers. 'Frequently, players such as Carrera, that are not bound by bureaucracy, can be quickest in the market in response to a client's needs. We can keep in tune with clients and work with them to build more into service and support,' he says.
Companies such as Carrera are now able to provide a one-stop shop service too, Collier adds. They offer networking, managed services and ongoing support, all of which have traditionally been provided by dealers.
As the direct vendors muscle in, resellers are increasingly starting to work with them rather than fighting them. Less than five per cent of Dan's revenue comes from third parties, but more resellers are approaching the vendor as they struggle to make money.
Shepheard says: 'We expect this part of our business to grow and will be happy to develop more relationships, provided we feel it represents value to our clients and is the best service proposition we can offer.' He adds that resellers are attracted by removing shipment, ordering and credit and cashflow management from the equation: 'Resellers are under a lot of pressure. They don't want to hold stock because they have problems with credit lines and they have to pay for logistics - all the things direct vendors can do themselves.'
All dealers will find affinity with Shepheard's remarks, but they cannot expect to get any margin out of being agents. Shepheard adds: 'We won't get into situations where we are passing on margin to third parties. They may add complementary value in the form of services or software - that's where they need to make their money.'
According to Andrew Bryson, technical manager at CQ Technology, losing margin is not always a problem: 'We tend not to get involved in hardware because that's not our area of expertise,' he says.
CQ will allow customers to deal with Dell under CQ's account name, giving them access to the dealer's slightly preferential terms while saving CQ the trouble of handling the hardware and financing the deal. On other occasions, CQ will provide vanilla boxes from small assemblers, which can result in a saving all round.
Bryson says: 'Customers can often save money if they deal directly with Dell under our account name without us having to handle the box. It may also be possible for the assembler to make a little extra margin. Everyone benefits.'
If Shepheard is right - that resellers are increasingly willing to talk to direct vendors - we could be witnessing the start of a change in the way PCs and possibly other products are delivered to users through the channel. Dealers could become agents for sales fulfilled direct by vendors.
They won't 'sell' PCs, they will sell services and any charges associated with the acquisition of a PC or server will be bundled as part of those fees.
The situation could apply to all boxes, whether branded or vanilla - dealers say there is demand for vanilla boxes, but only where the market is price-sensitive.
Honeyframe Computer Services used to make its own systems but stopped when CE regulations came into force. Chris Preece, managing director of Honeyframe, says: 'It simply became easier and cheaper to get someone else to do the job for us. Most of our customers are local companies that want lower priced units. We would rather concentrate on areas where we can add some real value, such as install-to-desk, warranty and stock administration and configuration.'
Typically, resellers can offer an unbranded unit for about #150 less than a branded box - a huge saving for small businesses with low budgets.
Both Honeyframe, which is based in Telford in the Midlands, and CQ, which is based in Surrey, use local suppliers of assembled units - they understand the requirements and are on the spot if there are problems, says Bryson.
According to Ian Robin, channel manager for the UK and southern Europe at keyboard and components vendor Key Tronic, the market for tailor-made boxes is far from exhausted. In fact, he says, there is scope for vanilla vendors to offer more if they add in the odd branded component.
'Vendors spend big money to support their brands and this is exploited by smaller assemblers that unashamedly name-drop in their promotional literature,' he says. 'Leaving aside examples such as Intel Inside, multinationals seeking to protect their own large brand equity tend not to acknowledge that certain components are manufactured by another company.'
Specialist assemblers are beginning to flourish, mirroring the developments of Vars in the mainstream channels. One example is Industrial Computer Source, which custom builds and assembles industrial-strength PCs. It is a US venture with offices in Chichester and its customers include Sony and Royal Mail. For some applications, the industrial strength of the PCs gives them an edge over Compaq or Dell.
These days, a PC is little more than a series of components bolted together.
Vanilla suppliers can use this point to reassure customers but if they establish a minor brand too, customers may feel more comfortable. If there is to be a brand, it should be either the reseller's or the vendor's.
Those that fall in between are doomed to failure, says Jon Atherton, general manager at Enta Technologies. He adds that recognised distributors must ship vanilla units, but selling their own brand would be a big mistake.
Enta tried with its Enact brand but pulled away because the strategy conflicted with the interests of its systems building customers.
One way around this is to build someone else's brand, a move that has been adopted by Northamber. Loay Lawrence, marketing director at Northamber, says: 'Users are looking for branded systems. The guys who can give them that are organisations such as Hewlett Packard and IBM.'
Lawrence does not deny that there is a demand for vanilla boxes, but Northamber has chosen to go with branded systems because of reseller demand.
Atherton believes there is a healthy market for distributors that are capable of building systems and the option of using the distributor to assemble and configure systems is becoming more attractive. But it isn't easy to set up an assembly operation that can meet the needs of resellers.
He adds: 'On the other hand, there is a cost advantage for resellers if distributors assemble their own systems for them to sell. They can save #8,000 or #9,000 immediately just by having one less box builder.'
But whether a small reseller can make the saving depends on whether the business is using engineers for tasks other than system assembly. Many use junior staff to provide maintenance services too, but customers may not be happy knowing that a 17-year-old just out of college was responsible for pulling machines together from a series of imported components.
Experience and procedures do count and smaller resellers don't always have the resources to supervise assembly. Staff can only deal with one problem at a time - if they are on site fixing a machine, they cannot be assembling PCs.
In addition, there are the problems mentioned earlier of managing the logistics and the cashflow and ensuring rules and regulations such as CE verification are followed. It isn't easy for the reseller to assemble boxes but it is almost as hard, it seems, for the distributor.
Atherton adds: 'It is a growing business which needs focus because there is so much involved. Quality checking and just getting the right staff is a huge exercise in itself.'
Increasingly, though, the channel is involved in assembly at the distribution level. There is not one large distributor or corporate hybrid reseller that does not participate in this market in some way. All key distributors have their own assembly or configuration programmes. Northamber takes part in HP's CAP and IBM's AAP schemes and Computacenter and SCC are also working on AAP. In addition, many distributors provide either vanilla or own-branded product, assembled and - in some cases - configured to order.
With so many playing the assembly game and branding becoming increasingly important to users, the status quo looks unlikely to continue. A PC may not need to carry a first-tier name but it does have to be tried and trusted.
Increasingly, it looks as though distributors and hybrid corporate resellers will have the advantage when it comes to vendor-channel assembly programmes.
But the schemes will not necessarily equip distributors with the resources necessary to succeed in the vanilla space. That will be the domain of the local assembly specialist operator - which may well be a dealer of sorts itself - and the distributors. The former has the advantage of being local and being able to develop an understanding with the reseller personally, but the latter has more financial clout.
But the most worrying aspect for distributors and assemblers is the willingness currently displayed by resellers when it comes to dealing with the direct vendors. So, if a machine is vanilla, it has to be cheaper than the equivalent branded box. It is, for the moment - but for how much longer?
FLAVOUR OF THE MONTH
Figures from Romtec GFK indicate a stabilising of the share between direct and indirect sales, which evens out at between one and two-thirds of the market. But this doesn't show us whose boxes the channel is moving or how many of them are vanilla. An increasing number of machines routed through the channel come from vendors such as Dell, Dan and Carrera.
In the breakdown of reseller types, there is a strong indication of a decline in margins and the willingness of Vars to handle boxes - the proportion of machines handled by Vars last year fell dramatically. Those handled by larger Vars or services companies also declined sharply. Their business is picked up by retail and mail-order, not the direct vendors.
Vanilla business is, at best, static and research suggests the work in assembly and configuration is increasingly being handled by distributors.
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