Life on the line

The future of e-commerce looks rosy and profitable. But when Drew Cullen looked into it, he was amazed to find that most resellers still have little or no presence on the Web.

Earlier this year the scene was set, although the setting was a tadullen looked into it, he was amazed to find that most resellers still have little or no presence on the Web. unusual - a luxury cruse liner floating just off the south coast.

It was Comdef, the annual 'big companies meet the little companies' jaunt.

In one of the sessions entitled 'Internet Distribution - channel threat or opportunity', speaker Tim Barnsley, director at specialist consulting firm Channel Dynamics, asked who in the audience felt threatened by the internet. Just one dealer raised his hand. Everyone else voted for sunny-side optimism.

But channel participation in the internet shows that resellers are not walking it like they're talking it.

At a recent seminar on e-commerce, hosted by Microsoft and TDS, the #8 million High Wycombe-based reseller, less than half of the attendees said their company had a Website, while more than 90 per cent said they wanted to make money out of the internet.

POWER OF GOOD

Thomas Power, group managing director of TDS, is bemused that so few resellers have their own Websites. 'Resellers make little or no money on tin, but they do make big profits on time. The internet is a large money spinner on consultancy, support, training and network installation.

But how can these people sell time and expertise if they don't have a Website?'

Power has little truck with companies which say their customers are not interested in the internet. 'It is the responsibility of resellers to take the internet to their customers. Otherwise they will die,' he says.

James Wickes, MD of Ideal Hardware, agrees. 'You can either sit back and say that your customers don't want the internet, or you can set out to change it.' Ideal is currently working on schemes to encourage customers' use of its own highly regarded Website.

According to a study compiled by Academia, the services division of broadline distributor CHS, only 500 UK resellers have even got Websites up and running.

Compare and contrast this number with the estimated 20,000 plus channel organisations currently in the UK.

How useful are these Websites anyway? Barnsley's hunch is that 'a very large proportion of Websites are wasted money. Few computer dealers are clear on what they are actually doing with a Website.'

After the first flush of enthusiasm, many dealers suffer a loss of interest in their Websites. Prem Gyani, Academia divisional manager, cites two main reasons for reseller failure to engage with the internet.

Some are putting together Websites on a shoestring, with a borrowed engineer to set it up. Then it rots, while the engineer gets back to doing real work. Or resellers write it themselves. They may have done a reasonable job, but because they never update it, it quickly deteriorates into a bad job.

The second approach is to hire an internet design agency and pay a small fortune for a load of flash graphics. Neither way is sustainable - due either to the workload or the cost.

AIM TO MAINTAIN

Maintenance is an incredible problem, Gyani claims. 'Unless you keep your site current, visitors will soon stop going there.'

Academia's solution is to sell Websites off-the-peg to resellers. There are five options, costing between #2,500 for a simple marketing site and #10,000 for one fully enabled for e-commerce. Some options contain data feeds supplied directly from constantly updated CHS databases. This solves the maintenance problem for resellers, which can front-end an online catalogue incorporating 40,000 units sold by CHS.

STAGE FRIGHT

Since he started at the end of June, Gyani has sold a dozen Websites to resellers. He advocates a step approach to building a Website - start off with a marketing Website, and then work in the information delivery six or nine months down the line. Only then should an e-commerce capability be dropped in, he says. 'It's not just a matter of buying an e-commerce push button. Implementing a proper internet strategy takes 12 to 18 months,' he suggests.

Ideal Hardware is also supplying data feeds for resellers to incorporate into their own Websites. The company is preparing a brochure advising its customers how to get online.

Managing director James Wickes is convinced the internet is the way forward for computer distribution. Information delivery and gathering is more important to his company than electronic trading, he says.

'Whenever you get phone calls you can get delays. The phone is the biggest bottleneck in distribution. The more customers who can get their information online, the more sales resources you free up and the more savings you make. It makes sense to pass on some of these savings to your customers - whether through rebates or through free information exchange.'

Thus it would seem that the internet should be regarded as a threat by all those not on it. In an era of margin-squeeze, costs must constantly be managed down. And the internet is the most potent cost reducer of all.

Dell, for example, sells $2 million a day over its Website, which is manned by just 30 people. 'The internet is the ultimate direct model,' according to Dell.

This may not be good news for the company's telesales force. Or resellers.

OVER EXPOSED

Internet distribution threatens to undermine volume-driven computer dealers, Barnsley says. 'Computer dealers are more exposed than ever. Vendors make a virtue out of responsiveness and flexibility. Build-to-order is taking billions of dollars out of inventory, and by extension out of the channel. Someone is making the money - and that is the manufacturer.

According to a survey conducted by Channel Dynamics this year, 69 per cent of corporates would prefer to order products online. 'Why have a human interface when you can key in a few variables to obtain a selection, a price and a transaction?' Barnsley asks.

'Resellers have been saying for years that they have got to specialise - and they have got away with it for years - but their luck may be running out. Perhaps the computer market will be subsumed into office supplies.

Already, bottom-end products like keyboards, mice and even Pentiums are just line items in catalogues.'

LIFE UNDERGROUND

Building an internet-based model will not necessarily save computer dealers, Barnsley argues. Few will be able to reach the customers. He says: 'I have a sense that computer dealers are pretty hazy about what business they are in. With the internet, there will be companies trading a broad range of stock at keen prices. There will be room in the market for three or four key players, and no more.

'The person who compares internet advertising to that on Underground stations got it right,' Barnsley says. 'You are constantly exposed to it, but unless people have an Yellow Pages type mechanism to find what is on offer, it is useless. Otherwise, they will simply ring up Dixons or Comet.

'The brand will become even more important and, to some extent, the packaging too. You can't just market on the internet - what percentage of the market knows how to browse and buy online? It has got to be more accessible.

It requires marketing push through both the national press and specialist outlets.

'A couple of months ago, at Comdef, I punted the view that the distributors could become the new aristocrats of the computer industry. They have the dynamics in place - the advertising muscle, a broad range, keen prices and excellent logistics. They have all the strengths Dell can offer, plus brand choice. But I am now inclined to believe that they could miss the boat. Some don't even know which boat to get on.'

WHO BRANDS WINS

Barnsley thinks the winners will have the brand that attracts customers.

'This will probably be BT rather than Viglen,' he says.

This will be music to the ears of TDS, which holds an exclusive UK franchise for Trade-ex, a US-developed online trading system or marketplace that is capable of matching many buyers with many sellers.

The company is running trials for Trading Places, BT's closed electronic market, which features eight big brand IT and office supply vendors.

These include Dell, Gateway and Action, along with 200 buyers drawn from SME companies. Buyers can order staplers and Tipp-Ex from one seller and computers from another. They receive just one invoice from Trading Places.

Buyers operate on a range of credit limits, set after checks with Equifax or Experian and currently on traditional invoicing terms. 'SMEs are resistant to the corporate credit card because traditional invoicing gives them more time for settlements,' Power says. 'We want to test this gently.

It is hard enough to persuade people to buy Tipp-Ex online. But by the end of the year, everyone will be buying everything apart from company cars using their MasterCard or Visa.'

Power argues that resellers need to participate in electronic markets in order to get themselves noticed in the expanse of Websites. Corporate buyers are simply not going to wade across dozens of Websites to buy computers, he argues. Power advises resellers to join electronic markets operated by big brand players rather than set up their own since they lack the clout and money to attract buyers.

BYTE MARKET

Wickes disagrees with the need for electronic markets. 'The internet is the market,' he says. But he is ready to hedge his bets. 'I'll make sure we are linked up to whatever site is necessary.'

According to Barnsley, the internet will move resellers away from selling products. The survivors will be managing networks and assets, developing software or advising anti-virus strategies.

But value-added resellers should not avoid the internet, Power argues.

'Take consultants in ISDN solutions, for example. They can sell their time online, either as an advisor or through charging for a newsletter, and so can reach many more people than they would ever get to see in a day.'

Resellers should seize all such opportunities, he says. 'To ignore the internet is suicidal. It's join or die.'

E-COMMERCE CASE STUDY

Equanet, the #30 million Chessington-based reseller, has spent almost #250,000 on developing an internet-based quotation system. The company will begin system trials with its sales team this month, before testing the waters with selected buyers. Equanet services high volume, wide variety buyers, and consequently operates on low margins.

Equanet's system aggregates product and stock information from three distributors - Frontline, Northamber and Metrologie. It puts the data feeds through a filter to ensure consistency of data presentation and adds its own user pricing. The system incorporates a relational database which ensures efficient drill-down of information.

Buyers will be able to compile their own quotations online, or they can get their Equanet representative to compile it for them.

Chasing information to complete quotations accounts for between 40 and 50 per cent of Equanet's sales overhead, according to chairman Jonathan Chapple. He feels the system will free up the sales team to do more of what they do best - selling. 'This is how we will get to #40 million turnover,' he says.

Equanet's Web-based system will be available only to large buyers. Efficient ordering is the driving force for this system. Electronic commerce is almost irrelevant, as most customers operate credit accounts.

Chapple has no intention of opening up the system to the hoi polloi, or running an open Website as a corporate information or general marketing tool. 'These are useful solutions to get trade from people you have never heard of. The internet is a good form of advertising, reaching small businesses and consumers in cost-effective ways. But our customers are easily identifiable. And we know who we want to do business with.'