I have a cunning plan. I'm going into the PC business. Building,mpetition. Yet that can't prevent the industry from panicking that the value-added gift-wrap is going out of fashion. selling, delivery - lock, stock and barrel. And it won't cost me anything - not a single penny. Want to know how?
It's simple. The free Web space that came with my email account is now home to Gold's Great PC Discount Warehouse - PCs at unbelievable prices delivered direct to your doorstep. That's the first part of the plan and that was my first advert - I was paid for it. Now all I have to do is wait for my first order. When it comes in, I'll sit on it for a while and wait for the money to hit my bank account. I will, of course, telephone each customer and apologise for not hitting our seven-day delivery target but I'll knock a tenner off of the price to keep them sweet.
Next, I'm off to source the cheapest components I can lay my hands on - cases, keyboards, reconditioned monitors, chips and Linux, the free OS. You never know, if I can place enough orders with the bloke down the pub, I may even receive a bulk discount.
I've set up the workbench in the shed as my build-to-order manufacturing line. Customers can even log into the in-shed Webcam to see in real-time exactly what stage of the build process their PC is at. Finally, once I've nailed it all together, it's into the back of the Volvo Estate and off to the customer. Oh, and for that tenner off I gave you earlier, I'll cut my setup and installation charge to £20. Now, I can't say fairer than that, can I?
So what about value add and services? No problem. For just £80 per annum, you can become a Gold's Gold card holder with access to our 24-hour direct dial, fully trained helpdesk.
Calls are charged at £2.50 per minute at all times, with a minimum of two call-outs per year.
Acts of God and user stupidity are not covered. All components are guaranteed for 31 days after delivery, after which time you should contact the vendor directly.
And there you have it - the ultimate no-risk direct sell. Scared? No? Well, I know a few manufacturers that are. True, the indirect channel is under attack from its direct selling counterpart, but this has been the case for some time and will continue well into the next millennium. So why are vendors running for the hills?
A recent report from Regent Associates confirms what many resellers have realised for a long time - that a number of dealers are slowing down due to lack of investor confidence. And it predicts that things could get worse if the industry follows the lead of the US, with many vendors taking a long, hard look towards the direct sales channel. But surely it's better for these guys to concentrate on delivering innovative product to the channel to which dealers can add value. What's the point in coming up with mixed models that simply add complexity and alienate existing partners?
According to Alex Odin, director of Regent Associates, it is fairly inevitable that the slump in the US reseller industry will be reflected in the UK dealer channel this summer, simply because of the international nature of the business. And as the traditional summer sales slump looms on the horizon and customers go on holiday, there can be little doubt that UK dealers will be hit by a lack of sales. Only those dealers that are genuinely adding value to their products might escape. Because of this, many manufacturers have hit the panic buttons.
But there's no need. Generally, business confidence has returned to the UK and companies are increasing their IT spend. Unlike Gold's Great PC Discount Warehouse, they're not looking for boxes, but for answers to their problems. This is where dealers can exploit their advantages over Dell and other direct vendors.
Margin may no longer lie in shifting 'bloated' PCs to a handful of disparate customers, but in cut-down, no-thrills, low-cost terminal type units and other such devices. And it's not just the corporates that offer resellers the greatest potential. The often ignored public sector and government markets also have money to spend. Partnering with a vendor that is tailoring product to these niche markets could prove to be an extremely lucrative exercise.
One vendor at least - Hewlett Packard - seems to have woken up to the fact that its dealers have been losing sales to the direct sell suppliers that have been feeding stripped-down PCs to the market at £300 or less. With a typical specification of 32Mb Ram, Celeron processor, 24x CD-Rom and a mono monitor, these PCs are being snapped up in their hundreds as network terminals.
In an attempt to stem the flow, HP is, through dealers, selling its NetVectra Windows terminals, aimed squarely at the thin client side of the business. The emphasis is on ease of use and standard manageability features such as support for HP TopTools, says Phil Hall, product manager at HP's desktop division: 'As far as thin client terminals are concerned, the dealer or IT manager need only visit a user's desk once to plug in a terminal - it's as simple as that.'
The dealer can then add value and remote manageability through built-in networking features by providing a trouble-shooting or network monitoring and maintenance service, says Hall.
Prices for NetVectra GT terminals start at £300, which buys a terminal that uses the ICA protocol with Citrix WinFrame 1.6, 1.7 and MetaFrame. The HP GT200 comes with integrated terminal emulation, a 10BaseT network interface card, twin serial ports, a PC card, 16Mb Ram, keyboard, mouse, 16-bit stereo sound out and 8-bit mono in, plus SNMP 1.0 support.
While NetVectras are a good way to fight direct sales operations targeting large corporates, some sectors of the reseller business are not so lucky, namely the government and educational channel.
The public sector side of the indirect channel is, and always has been, something of a headache for vendors. A decade ago, the business was dominated by ICL and Acorn. Today, however, the educational sector is more fragmented.
Several direct vendors, most notably Dell and Gateway, have scored some successes on the direct sales front. Few seem to have woken up to the fact that a gap exists in the market due to the untimely exit of Apricot.
When it emerged in late March that Mitsubishi, the Japanese parent of Apricot Computers in Birmingham, was closing its operation, it was a sad day for the channel. Apricot was one of the early innovators and competitors to the IBM/Compaq stranglehold in the channel in the mid-1980s. Its answer to massive price falls in the channel was innovative - it routed low-margin PCs through a selected number of resellers prepared to sell by mail order and compete with the off-the-page boys.
Apricot's departure from the channel leaves a gap in the educational sales market that has yet to be plugged by any of the direct sales merchants.
It is, however, being filled by a number of PC vendors which, either through luck or ingenuity, have come up with low-cost or multi-function systems for this segment of the channel.
One such vendor is Siemens Nixdorf, which has launched a range of multi-functional PCs called the Scovery series. The machines have been designed for resellers to supply into large organisations as a replacement for basic terminals. They have a small footprint and are being touted as the ideal way to access large-scale databases or SAP R/3 applications.
According to Siemens, traditionally there were two models for operating a network with centralised data storage, neither of which is ideal for corporates. One system is based on dumb terminals, the other on central data storage but with conventional PCs on the network. Siemens claims the dumb terminal system is restrictive, while the implementation of PCs relies heavily on a network administrator to ensure applications are always secure and available.
The Scovery 211 and 212 series are different, Siemens says, because they can be equipped with an optional Linux operating system, terminal emulation and Citrix client software. The PCs are based on Intel Pentium II architecture with 512Kb of on-board cache and a 4Mb graphics adapter. The real selling point for the dealer is that the terminals can be upgraded with a hard disk, CD-Rom, floppy drive and Windows 95 or NT 4.0. Up to 256Mb of memory can be added and there is room for two expansion cards.
Pricing depends on the configuration, but Siemens says the machines are about two-thirds the cost of a basic PC and, somewhat predictably, have far less total cost of ownership (TCO).
One direct-selling company that is doing nicely in the educational market - and of which dealers should be aware - is Dan Network Solutions, the dedicated networking subsidiary of Dan Technology. While indirect sales staff scoff at the sales tactics of their direct sales cousins, Dan's strategy bears close examination for the simple reason that it is nothing but logical.
The strategy at Dan Network Solutions is to add value to its PCs for the educational sector, by launching a family of network management and application software systems for schools.
Designed for schools that are buying systems under the auspices of the government's National Grid for Learning scheme, the Dan Network Solutions suite consists of seven modules designed to maximise pupils' benefit from computers, while enabling teachers to manage school networks with the minimum of effort and training.
The modules can be purchased individually or as a complete suite. The Dan Classroom Management Suite simplifies computer-based learning and network management for pupils and staff, while the Dan PC Security module aims to prevents pupils - and others - from accessing and modifying the PC operating system on desktop machines. According to Dan, the security module enables school IT managers and teachers to control every aspect of Windows operation, dictating which facilities can and cannot be accessed in a way that is transparent to users.
With pricing at £395 for a 35-user licence, this is one aspect of Dan's software that could be 'cloned' using one of many PC security applications, to allow perceptible value to be added to indirect educational sales.
One of the biggest problems facing mainstream resellers, particularly the independents, is that because the direct sales vendors are clearly targeting most sections of the indirect channel, indirect margins are falling through the floor.
Financially, many dealers are finding their backs up against the wall.
Now is most definitely the time for resellers to make a reappraisal of their markets. It's also a great opportunity to look at the products they should be stocking and reselling.
THE FIRST-QUARTER EFFECT
The impact of the direct channel on the indirect channel is illustrated by the first-quarter figures from Context. While UK prices were down about 26 per cent on the quarter, Dell climbed back to the number two slot - behind Compaq.
While Compaq accounted for 23.8 per cent or 280,000 units of UK sales, Dell's strategy is one of intensive advertising and selling into specific segments of the direct sales channel.
According to Context, Dell's 46 per cent year-on-year European growth rate was among the highest achieved. In the UK, Context recorded 39 per cent sales growth for Dell with 237,000 units shipped.
The Context figures show that the indirect channel is still fragmented.
Aside from Dell's rather obvious incursion into the number two sales slot, the figures show that the PC sales business is becoming very volatile and, if anything, more price-sensitive than ever.
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