Exactly how much business is being done in the channel over digitals that e-commerce is a killer sell. If you don't do it you're dead in the water. But is this true? How many channel businesses has e-commerce sunk? And does the level of electronic dealing really amount to anything significant? links? The honest answer is not much. Although some distributors have made fairly grandiose claims, the truth is that few are doing more than perhaps one or two per cent of their business over e-commerce channels.
It's also true that many corporate resellers, such as Computacenter and Elcom, have had online ordering for many years and take many orders from their corporate clients in this way. But these are pre-defined EDI links.
The real business of the channel, working electronically on a day-to-day basis, is yet to happen in any significant manner.
Computer 2000 is one of the distributors that has travelled further down the e-commerce road than most - it claims to do more than five per cent of its business through its In-Touch 2000 system. Andy Gass, deputy managing director of C2000, says there are 3,500 registered users and, at its peak, 600 use the service in a day.
He believes the volume of orders placed online - via In-Touch and a growing number of EDI links to corporate dealers - will triple this year.
'In a year's time, I'd expect it to be at least between 20 and 30 per cent of business,' he says.
Like most distributors, Gass sees electronic trading as essential to remaining competitive. 'It makes us more efficient and it also makes our customers more efficient,' he adds. 'We are able to process the transaction without human intervention and take more orders with improved accuracy. Every year we have to become more productive and our head count has to grow less than our turnover.'
That's a very candid point: distribution is a competitive game and people cost money. E-commerce means fewer staff are needed to handle the basic business and, as all distributors will claim, expert resources are then free to spend more time helping customers.
Ingram Micro is also attempting to increase its online sales and other distributors are working on their sites. Ideal Hardware has just launched a second version of its Boris system and has high hopes.
Joe Breen, customer services director of Ideal, has a target of 6,000 users for Boris in six months. He believes the e-trade revolution is coming soon. 'This must work because the Game Boy generation is only a couple of years away and they'll want to get on the Web, buy what they want and get off.'
Ideal expects to make a higher percentage of sales on branded products and of ex-stock component items via the Net. This would be any product, says Breen, where 'the value add is availability'.
Jonathan Chapple, chairman of reseller Equanet, agrees availability is the key, but thinks distributors are getting it very wrong at the moment.
'The manufacturer's and distribution channel's internet products to the trade are a fragmented collection of Websites that provide technical support, but that's about it - and frankly that's not e-commerce.
E-commerce should be about making it easier for the reseller and the user to buy,' he says.
He says there ought to be a single 'master distributor Website' with all the key distributors' products and prices updated centrally, overlaid with a fully integrated quotation service. Resellers could then trade more efficiently as they would require access to only the one Website. This, in turn, would eliminate the labour-intensive quotation processes.
'When this happens, the channel will finally be able to take on Dell at its own game and beat it,' Chapple argues. 'Larger resellers need to know exactly where the stock is in the channel and at what price. Then we can leverage the channel's trump card - availability - and turn this into added value.'
There is too much of a preoccupation with ordering over the Net, Chapple believes. It is not ordering that's the problem, but putting quotations together. Sales staff, he estimates, spend up to 30 per cent of their time preparing quotes.
Once a quote has been issued, it doesn't matter how the order is taken, he argues: 'Phone, fax, carrier pigeon - as long as you get it and can respond quickly.'
In addition, for many resellers, the type of products they can order and sell over the Net - branded and ex-stock items such as consumables - are not a priority. Mark Byatt, marketing director of Morse, a Sun Microsystems and Hewlett Packard reseller, says: 'We sell high-end, enterprise-class technology. It's fairly complex stuff and our customers don't really want to place orders across the internet.'
The problem, believes George Evans, managing director of Making Markets, which provides a push technology product aimed at channel organisations, is that e-trade is still in its evangelical stage.
'As margins in the channel continue to get squeezed, any opportunity to reduce the cost of sales is attractive. On the face of it, being able to take a Web order looks cheaper than getting a human to take it. However, at this stage, it is only the real believers who are committing because there is significant capital expenditure required to either attach an e-commerce engine to a legacy system or, harder still, replace it with a new one.'
Even software is not being sold or distributed electronically in any great volume at present, although the clear logic of doing this has long been recognised. Tim Waggett, managing director of electronic software distribution expert Distributed Network Applications (DNA), says it is slow going right now. 'Vendors have not been promoting it and resellers, even if they buy electronically, aren't selling electronically. They don't have to, of course, but it makes sense.'
Even when the vendors get behind the idea, old habits die hard, he adds. The established modus operandi of distribution and buying and selling won't break down that easily.
However, the tide must turn, say the experts. Online ordering will have to become the norm for many products and this may force resellers into becoming nothing more than agents for the product sale. The question beyond that is, what value they can add?
But the real issue is when re-sellers will have to start becoming e-commerce-aware and able. What will finally trigger the demand from users to switch from placing orders on the phone to placing them over the wire?
The answer will come from vendors. When key players such as Compaq start to offer lower cost PCs online, the rest of the products market will follow.
And that could start happening this year.
According to one independent industry observer, Compaq is already hatching plans to trade directly and pay resellers a commission to deliver products to the user on its behalf. This may not exactly be 'direct' selling, but if it takes the order online with no reseller involvement until the delivery stage, essentially the dealer becomes a fulfilment stage.
'I believe it is going down this route in March/April to address the SME market and snatch back some of the business being achieved by Dell,' he adds. 'This will create a problem for many resellers and perhaps an opportunity for those manufacturers that will continue with an indirect-only strategy.'
However, all vendors - and resellers - may have to respond if the desire among users to purchase certain products online continues to grow. According to a survey conducted by corporate e-commerce systems provider Gresham Computing, 54 per cent of consumers would prefer to shop for the best prices, buy the items they want and have them delivered, all without having to actually visit a shop.
This figure rises to 80 per cent within the 15 to 34 age group. The research covered 1,000 individuals and 50 senior executives from the UK Times Top 1,000 and it certainly suggests that the concept of ordering online is very attractive to organisations.
'When you see a company such as Dell successfully selling over the internet, UK business, especially third parties, will have to realise that adapting for this channel is the only way to survive in the long term,' says Mike Sharples, managing director of e-commerce developer Stratum Media.
Resellers should be benefiting from using e-commerce today, adds Waggett: 'They should be getting incremental sales from the Website that perhaps they wouldn't get any other way. Once it's presented like that it becomes a no-brainer: there's no stock, no credit risk.'
The ease of doing business via e-commerce is also clearly effective for the customer, says Les Francis, channel specialist at research firm Romtec. And it just can't be ignored. 'Will resellers lose business?
Almost certainly, as manufacturers such as Compaq introduce Web-based order capability with fulfilment through selected agents. The traditional role of the reseller must change - they already recognise this - to be one of added-value provision to the target customer. This is especially where they have bought off the Web and now need local commissioning, support and additional product or service.'
Distributors may also have cause for concern. One senior distribution executive says it's likely that the very top end - the leading corporate business - and the very low-end commodity and consumable products business will be lost from the channel eventually. 'They have to do it to compete with Dell.'
Alan Laird, sales manager at Bull's software division, Bullsoft, which develops secure trading tools, agrees with this assessment. 'In the short term you probably won't lose anything significant, but within six to 18 months not trading electronically will be a huge drawback. Is there a chance you'll lose it all? Yes, in terms of significant purchasers and purchases. Also, there's a real possibility that the higher and regular spenders in the small business and home markets will switch to electronic purchasing.'
Online buying of computer products is already catching on in the US.
Insight.com offers more than 50,000 products and the company has annual sales of $800 million. Ninety per cent of its revenue comes from business customers.
There is an inevitability, it appears, about the advance of e-trade for some PC products and some volume items into both the business and consumer markets. There are some resellers that are already living with this expectation and some vendors have started to encourage their partners to set up e-trading sites.
The internet utilities software house, Ipswitch, launched its WebVar programme in April last year. It enables e-transactions to be conducted from the reseller's Website. Product details are provided for the dealer and orders are passed on to the Ipswitch e-commerce server directly. Resellers get a referral fee for each purchase.
This effectively turns the re-seller into an agent for the product, in a similar way to how Compaq operates in the US, but some resellers have been very positive about the idea. 'It's pretty near to a perfect method of processing sales orders,' says Andrew Hall, managing director of Open Access Technologies, one of Ipswitch's re-sellers. 'It works best when the customer knows what it wants and can pay up front.'
In some aspects the Ipswitch scheme is similar to the approach adopted by Digital River, which provides resellers with a set of tools that enable them to sell and download software products from a central database. The company claims to have 131,000 products in its database and more than 1,600 software publishers and on-line dealers worldwide.
Digital River enables a reseller to offer many products via the Net right away and similar schemes are certain to emerge over the coming months.
These programmes will further encourage the idea of the dealer as an online agent, but Hall says e-trade will never take away the need for the human touch.
'The minority of sales take the form of a pure electronic transaction, as few customers trust the internet sufficiently to take a leap into pure Web commerce. They're only reassured by talking to a real live person before handing over their credit card details,' he says.
He adds: 'Traditional distribution and reselling is our backbone activity and the personal contact it requires remains crucial. All our business involves personal contact. This necessitates staffing continuity and product knowledge, combined with an understanding of customer requirements. That flexibility can't be automated.'
Chris Barling, managing director of e-commerce systems provider Actinic Software, thinks there will always be a market for real Vars, but they must take e-trade seriously. 'The issue is whether real value is being added or not. People wanting to sell across the Net must treat it sensibly. To make real sales, there must be significant concentration on marketing.'
What is clear is this - whether you start using e-commerce on a day-to-day basis yourself, or put in place the processes to enable businesses and users to directly trade with you electronically, 'setting up an e-commerce site is just like getting a new phone line for orders', Barling concludes. 'If no one knows your number then no one will call.'
HOW DOES DELL DO IT?
When it announced its third-quarter figures (ended 12 November 1998), Dell stated that its internet sales were running at $10 million per day worldwide. This is approximately 14 per cent of its total revenue, and with annual sales of $20 billion that means the company will do something like $2.8 billion worth of business online this year.
In Europe, Dell is apparently selling about $3 million worth of kit per day over the Web. Sales in Europe grew by 90 per cent in volume and by 68 per cent in revenue between October 1997 and October 1998. By selling through the internet, the company believes it achieves real productivity gains and cuts the cost of sale.
Dell has Websites through which anyone can specify and price a system, and then either place an order online or submit a request for someone to phone them up to talk it through.
The company also provides Websites tailored for larger corporate accounts.
In the US, the open Website apparently makes up about 70 per cent of Net sales, mainly because Dell's strength here is SoHo business. But this balance is changing and corporate firms are starting to place their orders on the Web in increasing numbers.
Worryingly for corporate resellers - and for Compaq - the balance is reversed in Europe: one third of sales go through the free access Website and the corporate site makes up 70 per cent.
Dell is also starting to provide order status information and technical support through the Net. Once again, worrying developments for vendors that are being hit by Dell's growth.
HAVE DISTRIBUTORS GOT IT RIGHT?
Thomas Power, an e-commerce channel consultant and non-executive chairman of The Ecademy - an online information centre on e-commerce - has been working closely with distributors for several months. He says that distributors show no more or no less inclination to embrace the opportunity, and are not deterred by the notion that manufacturers might use e-commerce to bypass them.
On the contrary, says Power, the role of the distributor as a central purchasing base should be strongly enhanced as a result of e-commerce. This will make them even more important to the manufacturers.
Where there is reluctance to make the commitment, it is mostly down to simple 'education'. Power says: 'In my experience, once a distributor has seen the advantages it is hooked. Only budget plans inhibit the start date, but I believe that they will join the club. Part of the education process is "don't count the cost of encompassing e-commerce, instead consider the cost of not doing so."'
The current confusion and concern are based on fear and trepidation of the unknown. Combat this through education, and we will see a massive move into e-commerce from all business sectors,' states Power.
While e-commerce has been slow to develop in the UK, retailers and distributors in the US have long touted the benefits of buying and selling over the Net. One of the most notable champions of e-trading is Egghead.
Egghead was once the biggest operator of store front software retailing outlets in the US. But in February last year, the veteran retailer shut down its last 80 stores and turned itself into an internet-only operation.
The makeover had a startling effect. The previous year, the retailer was in trouble when it closed 77 of its then 156 stores and withdrew from 30 US regional markets.
But following the decision to embrace e-commerce, profits soared. In the second quarter after it went online, its Surplus Auction site alone recorded sales of $13.7 million - this was 95 per cent up on the previous quarter.
Today, the company receives more than seven million hits a month and has greatly expanded its range of stock.
In the second quarter of 1999, which ended 26 September 1998, the company's total revenue was $35.1 million - a 19 per cent increase over the previous quarter.
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