I know what you've been doing, why you hardly sleep, why you live alone. And why, night after night, you sit by your computer. It's the question that brought you here, the question that drives us. Only in this case, the question isn't ‘what is the matrix?' – as in the 1999 film of the same name – but what the channel itself is, and where ever-evolving IT needs should take the reseller community.
The question, it has to be said, has certainly been guilty of causing sleepless nights among the channel partner community. IT resellers, and retailers, only exist to serve a need. Their function is to act as an intermediary between diverse manufacturers and the end user, but that relationship is changing. So perhaps, to see the future, we need to go back to the beginning.
In 1965, European manufacturer Olivetti unveiled the first programmable electronic desktop computer that was considered affordable for business use – the P101. But in the early to mid-1970s, the dominant UK players selling computing technology and services were the manufacturers themselves.
Outside of that, it was bureaux that provided data processing services and the like to businesses. Failing that, businesses might develop their own computer setups in-house if they saw a need – as J Lyons did when it ran its own program on LEO 1 in 1951 to tot up the prices of a week's cakes, pies and the like.
Machines like Hewlett-Packard's BASIC HP 9830 desktop were available from 1972, and the Altair 8800 kitset sold by mail order from 1975. But when the IBM 5100 (pictured, below left) and the Apple 1 appeared in 1975 and 1976, the market began to change more profoundly.
An American dream?
In the US in 1975, a couple called Dick and Lois Heiser attended an Altair roadshow show. The Heisers were reportedly so impressed they signed up as dealers, opening a store in Los Angeles called Arrowhead Computers the next year. December 1976 saw a then-unemployed technical writer called Stan Veit open Computer Mart in New York, while Altairs were also sold in Boston exclusively by Dick Brown's Computer Store.
"Computer Mart was different from the Heisers' store because it sold more than one brand of computer," Veit wrote in a press article in 1984. "We opened as a dealer for Sphere, the first desktop computer, and Imsai, an 8080 computer that was functionally identical to the Altair."
In the US at that time, vendors were offering liberal terms that encouraged computer retailers to proliferate, even though many were basement or garage operations, according to Veit. "[Imsai] offered a dealership to anyone who bought $2,500 worth of Imsai hardware and promised to buy 25 additional computers that year," he wrote. "Some, designed to allow a group of buyers to save money, existed only on paper."
Veit wrote that when the retailer had orders for 5-10 machines, he would put up the balance of the wholesale price and do the orders, paying in advance. "When the manufacturer received the money, he would buy the parts and begin to put the product together. It was a hand-to-mouth business," says Veit.
By the summer of 1976, according to Veit, there were more computer stores in the San Francisco area than in the entire rest of the world – mostly down to Paul Terrell's rapidly expanding chain of Byte Shops.
Paul Terrell is still around, although he sold his already 58-strong chain of Byte Shops in 1978 and finally left the industry many years later after a US Act of Congress ruled it was not legal to rent software out, unless you were at a library. This was after his concept store was complete and the legal franchise agreement complete and ready to go.
"I started the Byte Shop chain of computer stores and bought the first 50 Apple 1 computers from Steve Jobs that jumpstarted Apple Computer in 1976," says Terrell. "Woz and Jobs were offering the hobbyist a PC board to put the microprocessor chip on and build a computer. I told Jobs I had all the computer kits I needed, and what I wanted from him was an assembled and tested unit that I could sell to programmers and other people who couldn't build a computer."
Jobs took Terrell's purchase order to Krammer Electronics and told them if they would sell him the components on net 30-day terms, he could pay them for the parts and have enough left over to start his company. "A very clever Steve Jobs got his seed capital and was off to fame and fortune," says Terrell (pictured, right, with an Altair 8800 in the demo room of Byte Shop in 1976), who is currently writing a book about his experiences in the world of computer resales which, he says, has often been ignored although it was critical to the computing revolution.
Terrell formed Byte Shop with friend Boyd Wilson on 8 December 1975, like the Heisers, after attending the Altair roadshows. Originally an Air Force radar technician, he was discharged in 1966 and recruited by IBM in Santa Clara Valley, California – today better known as Silicon Valley.
"I was curious to learn about computers," he says. "The technology was transitioning from vacuum tube components to solid state components like transistors, diodes and semiconductors."
It was already clear, he says, that the real opportunity would be on the marketing and sales side. After IBM, he worked at other IT companies, eventually deciding to start his own manufacturer sales rep business, Repco, in 1974, also with Wilson. Repco sold computer products for vendors not big enough to have their own direct salesforce.
The manufacturer would identify prospects through advertising and trade show participation. Repco's agent would earn a commission on closing of 5-10 per cent, depending on the product's sale price. This was a time when mini-computers might cost $10,000. Repco had eight manufacturers of non-competing but complimentary computer products that it would sell to government and industry in its territory.
Repco was always looking for new popular computer products as well as established products with recurring sales potential, he says. But then he saw the Altair, which was "selling like hotdogs" at the roadshows.
"This was the first time I had seen a computer chip configured in an enclosure that made it look and feel like a Data General Nova mini-computer, costing $439. When the shock wore off, I called Ed Roberts, the president of MITS, and introduced him to the idea of selling his Altair with sales representatives rather than just mail order," Terrell says.
At the same time, Bill Gates and Paul Allen were developing a 4K Basic Language Interpreter to run on the Altair, and computer clubs were popping up everywhere, he adds. Byte Shop was opened basically as soon as Terrell and Wilson heard about the Heisers' deal.
"It was very clear to Boyd and I that 25 per cent was better than a five per cent sales rep commission, and we should open a store as soon as our plane landed," quips Terrell. "And if we were really smart the store would have a different identity from Repco, and we could then get a five per cent commission on top."
The first customers included engineers, technicians, programmers and curious entrepreneurs who were trying to figure out what to make of these new, significantly cheaper products, says Terrell.
"The rest is history," he adds. "And people that came into the store one day to buy a computer were coming back to buy a store."
To find out more, we also spoke to Mr Anderson. No, not Thomas ‘Neo' Anderson from The Matrix – sorry to disappoint – but Graeme Anderson, channel business sales manager at IBM. He is no neophyte – and neither is Sir Peter Rigby, who we were also fortunate enough to interview.
Keep an eye on Channelweb for the next instalments, where we trace how the IT channel came to be, and speak to leading players on where it might go next.
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