This is it, I have a new money-making scheme and I am going to be rich by the end of the year. I am going to make PCs, IBM clone sorts of things, and they are going to be my own brand. You, lucky reader, will be able to buy your own PC ? only this time it will stand for the Personal Clapperton.
A Clapperton in the house will be brilliant. Switch it on in the morning and it will tell you to bugger off, it wants another half an hour in sleep mode. Try to make it do anything before giving it a coffee and it will sulk terribly. It will take messages OK, but will pass on only the ones it remembers and if you give it too much to drink of an evening it will start rambling on about the sketch it once wrote for Spitting Image until it goes back into sleep mode.
Not everybody in the own-brand PC market has my gift as a visionary, of course. They do remarkably dull things such as making a branded PC that works, is efficient enough and, er, that?s it. It sounds pretty dull, but it?s probably more use to the average punter than my own innovative offering. Even so, the presence of these own-brand objets d?art begs an important question ? why bother? There are already plenty of PC-compatible clones on the market.
First, the case against. Shifting boxes out of the door per se is a very low-margin business. Percentage mark-ups are in single figures, for the very good reason that the clones are precisely that if they are any good ? identical, interchangeable with any other bog standard Pentium. There would be no point in making them different, any more than there would be any merit in making a television that refuses to accept Channel 5 ? although there would probably be a few takers for that one.
So, there is little chance to differentiate and a very low profit margin. On the even more negative side, there are well-established brands to run up against; for every Vanilla, Tiny, Simply Computers or Computime PC model, there?s an IBM, Compaq, AST, Elonex, Viglen and Apricot waiting to take its place. These are available through much the same channels as the own-brand stuff, too ? retail, dealerships, direct mail. So again, why do these other people bother? Are they nuts or something?
Well, that?s always a possibility. It?s also possible that they are on to something, and have found a business model in which selling own-brand clones becomes profitable. Take John Dixon, managing director of Computime, which makes computers under that brand name. Dixon is different from most own-brand system merchants in that his original idea was to sell other-branded kit. The business was an Amstrad reseller and then moved on to Apricot, but lost faith with the medium-to-major suppliers. ?They played silly buggers with the pricing, we were competing with distributors selling to the same customers as us,? he says. ?I got very upset with them and started buying clones.? We can take clones to mean anything with a non-established brand, since technically every PC is an IBM clone.
The trouble did not stop there, and Dixon ended up with nothing ?but quality problems?. One company sent him 20 PCs, all of which fell over.
Others go through the direct mail route, and suggest the margins are too slender to allow the business to do otherwise. One maker of the so-called clones is Simply Computers. Chairman Paul Berry has no compunction in admitting to selling exclusively on price, and sees his organisation?s speed to the market as a distinct asset. ?It?s easy competing with people like IBM, Compaq and people like that, as well as the retail stores, because we can be very fleet of foot,? he says. ?When a chip is discontinued we haven?t got loads of stock and we?re quick to the market.?
By maintaining this inventory-free policy, Simply was able to be on the spot with systems based on AMD?s K6 from day one. ?Customers know what they want in terms of off-the-page configuration. They are very sophisticated,? he says.
Product shortages are not a problem in the way they can be for the biggies ? ?It?s easier for me to go to the grey market or other suppliers than it is for IBM or Compaq,? he says.
The off-the-page business model is by definition low-margin. ?It would be very difficult to sell the major brands off the page,? says Berry. ?The sort of people they go to have purchasing agreements with SCH and people like that.? Reaching the size at which it would be possible to sell an own-brand system through an indirect channel would be difficult. ?You?d have to be as big as The Granville Group.?
The alternative is to add value to your own systems, as Computime does, to push the margin up. Having acquired an ISO 9000 accreditation for its manufacturing, the company couldn?t go out to the grey market if it wanted to. This margin enables it to offer some sort of warranty, which some of the smaller traders don?t. ?People who run on five to 10 per cent margins have major problems when things go wrong because everyone expects things to be fixed for nothing,? says Dixon. This might just be something to do with the fact that a domestic customer will regard about #1,000 spent on a PC as quite a lot of money, really, whereas the vendor won?t see it in that way. ?They turn around and say, look, you paid nothing for it, what do you expect??
Hence one requirement shared by both companies is the need for a distinct perception of who their customers are. Berry certainly does not see Simply Computing as being in competition with the likes of Dell or Compaq, since their customers are more on the corporate/business side, although to look at their advertising you might wonder just how true this is. Dixon sees himself in competition with other dealers, since networking is one of his organisation?s skills. ?If someone comes in looking for a single PC we tell them to go to Dixons or PC World,? he says. ?Anyone but us.?
So what, if anything, do the ?names? themselves think of own-brand kit? To an extent you can argue that even the IBM PC company is its own brand. It seems remarkably calm about the commercial threat from the me-too peddlars ? IBM isn?t about to go down as a result of the smaller guys ? but they have other negative effects on the market on which the company is none too keen. ?They don?t spend anything on driving the market forward but they leech along with our marketing spend,? says Nick Eades, business manager for desktops and Thinkpads. ?They are perceived as faster to the market with product than the major brands but they don?t necessarily factor in the aftercare that we do.?
Not all clone people are lax on aftercare, though ? and the issue of being perceived as faster to the market remains a problem. Berry is perfectly straight about how he achieves it; he can go to the grey market for items such as memory when there is a shortage. Eades doesn?t approve, although asking an IBM-er to do so is akin to asking Bugs Bunny to approve of rabbit stew.
?We have a lot of people in purchasing who endeavour to maintain consistency in a product. Very occasionally, your application might depend on consistency at the Bios level, which largely depends on what you have on the motherboard. If your system breaks down and you have to get another three months later, and your business depends on that application, the PC needs to be absolutely identical.?
Computime is hot on the quality issue as well, having been bitten too many times by systems that refused to perform while it was in its clones phase. ?We only use Intel chips and Intel boards,? says Dixon, ?and the thought of botching or grey market components is not something that appeals. You find someone?s got hold of a video board that doesn?t quite fit ... well, it does if they force it, but the sound card pops out.?
Berry is unrepentant, but then he is unlikely to go out of business. Those of us who have been in the industry for a few years will remember other off-the-page sellers going down dramatically and frighteningly, such as MJN (in its incarnation pre-Granville Group) and even more infamously, Tiko, which failed to deliver systems to all who had ordered one ? and they did not get a refund. The IBMs of the world are unlikely to run aground quite so spectacularly, although there again, neither are the Crown Computers and Tempos.
Again, it is a matter of who your customers actually are. Reliability becomes an issue when a business depends on mobile systems that can go wrong anywhere in the world.
As Eades points out, IBM has technical backup in 137 countries across the world and will honour its warranties if a laptop goes haywire in any of them. Berry?s customers are magnificently unlikely to take their system abroad. Some of the direct marketers have also invested some brain cells in thinking this through; at least one successful mail-order company uses Bull as its service organisation, but keeps this a secret so that its customers will identify everything as coming from the same quarter ? this is supposed to be reassuring.
There is actually a fair bit of mileage to be made out of the follow-up issue. Dixon says not only does his company do all of its own maintenance and charge for it, but the other maintainers, seeing a clone that needs working on, run a mile, so there?s no competition. ?I can work on a margin of about 30 per cent a PC,? he says.
The organisations mentioned so far, however, have all been committed one way or the other ? they sell their own-brand kit or they don?t. The K F Group, which owns the Tempo retail chain, isn?t half so proscriptive and was content to offer its own Vanilla range against the established brands in its shops until scrapping it last year. Interestingly, these were not called Tempo computers, and nor were they called Bonsai computers when the shops carried that name.
Tempo chairman Michael Kraftman explains that in 1986, when the Vanilla brand started up, Bonsai was one of the leading IBM dealers but IBM was at its lowest ebb as regards R&D. ?It was the year before the PS/2, the AT had come out and they were very hot on micro channel. At that point, the clones had a big price/performance benefit and Compaq had just started selling the Deskpro 386.? In other words, there was a commercial disadvantage in sticking to a Blue-only policy at the time, and the then Bonsai became aware that it was losing business.
Unfortunately, Blue-only was the way IBM liked its resellers at the time, and it wrote a clause into its contracts prohibiting its dealers from using their own business name for a system ? the fear being that some positive branding might rub off. Hence Vanilla.
Vanilla survived for 10 years, but last year the company decided to retire it because it was no longer feasible to carry on. Oddly, the company ensured the range?s demise by making the system upgradable; when Pentium and the PCI bus came out it was difficult to integrate these into the existing architecture. Tempo, as it was called by now, reverted to a straight badging deal with Mitac, but this proved unsatisfactory as well.
?There were branding issues ? by relabelling and repackaging, we were building in a delay in getting the computers out just so we could call them Vanilla instead of Mitac. So last year we decided to leave them as Mitac and put them straight out.? So, have the customers missed the own-brand stuff? ?No, not if I?m honest,? admits Kraftman. ?It?s easy to get emotional about your own brand name and think it?s a shame it?s not there any more, but if there is no business justification for it there?s no point in having it.?
The bottom line for resellers must be whether there is any profit to be had from branding your own PCs. Clearly, Dixon believes there is, but not if your policy is to leave them as a bare box ? or indeed to put on a load of software your customer doesn?t necessarily want.
To make any headway in the own-brand market you first need to decide why you?re going into it, whether it?s because you want to ship small quantities quickly or because you want more control over your supply, and to ensure that your business plan matches the infrastructure you will need for the maintenance you plan to offer. Knowing when to get out helps, too, and as Kraftman more or less admits, the customer is unlikely to care much.
But it remains true that in order to succeed and maintain some sort of reliability, they must all be the same. How dull. I?d rather have a Clapperton ... no, look, did I ever tell you about the sketch I wrote for Spitting Image..?
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