Home Advantage

Tax breaks that help resellers to potentially double the number of PCs they sell to customers sound almost too good to be true

Home Computing Initiatives (HCI) sound like the sort of schemes a convention of fairy godmothers would come up with. Everybody is a winner - employers, their staff, resellers, the government, society at large - and all at the expense of the taxman.

HCI offer valuable tax breaks when employers loan PCs to their employees for home use as part of the government's ambition to increase the penetration of home PCs and improve the IT literacy of the British workforce.

The incentives were introduced in 1999 but most employers either didn't know about them or thought they were too good to be true, and only a handful of schemes were actually set up.

So in January 2004 the Department of Trade and Industry and the Office of the e-Envoy relaunched the initiative as HCI, with ringing endorsements from employers' organisations, trade unions and the IT industry, as represented by the HCI Alliance, spearheaded by BT, Intel and Microsoft.

HCI take time to set up, but already organisations such as Royal Mail, Toyota, Capita, BT, Siemens, Rotherham Council and Nationwide Building Society have taken the plunge, and nearly 1.5 million employees are already eligible for schemes.

Employees get a PC for little more than half its actual cost, which will hopefully improve their employment skills, education and quality of life.

Employers benefit from a small payroll saving, get a valuable benefit to offer to employees, and hopefully end up with a more skilled and productive workforce. Staff with home PCs are also more likely to do extra work at home, keep in closer contact with colleagues, need less IT support in the office and stay longer with their employer.

And the IT industry gets a magnificent sales opportunity. "We see HCI as the biggest business opportunity for this year," says Sarah Scott, desktop business manager at Acer.

Resellers get the chance to sell more PCs to existing customers and potentially recruit new customers. They can gain some consumer customers by selling add-ons and comms direct to the employees. And they can set up HCI schemes for their own employees, offering them a valuable benefit, saving a bit of cash and gaining some experience of HCI into the bargain.

In the longer term, when HCI agreements expire (typically after three years) there will be replacement sales. This is the usual pattern in Sweden, where a similar scheme has been going for a decade and most employees expect to be offered a PC by their bosses.

A handful of specialist HCI resellers, such as Nicator, OneCallPC and RedPC, are doing very well. "We've got 12 schemes to go out of the door this week, covering 40,000 to 50,000 employees, and that's fairly typical," says John Laity, director of marketing at OneCall.

But general VARs seem more reluctant. "We are talking to most of the major resellers but there's still a lot of hesitation about getting involved," says Scott. "They look at HCI and think it's going to be a nightmare."

The first concern for resellers is the sales process, which is a quite different proposition from selling business PCs. HCI is an employee benefit, not an IT sale, and the key person to convince is the human resources (HR) director, not the head of IT. This means that, even when dealing with existing customers, your salesforce will be starting from scratch.

"Traditional reseller relationships with IT people aren't really going to help. The IT manager is usually an obstacle," says Martin Prescott, managing director of RedPC. "It really is a different business model, and you've got to learn some new skills."

He suggests talking first to the HR department, then the lawyers. You should leave the IT department until last, when your chief task will be to convince them that HCI won't make their lives difficult by creating support problems.

At Sol-Tec, one of the few general VARs to get into HCI, financial director Simon Taylor visits prospects with his sales manager so he can convince his opposite number of the value of HCI. "It's the finance department that can really swing it for us," says Taylor. "I've done a scenario illustrating the saving on the employer's National Insurance (NI)."

Despite the government's altruistic intentions for HCI, many employers do it principally for the NI saving (up to £64 per employee per year).

This often accounts for HR directors' enthusiasm, since it is a rare chance for them to contribute directly to their employer's bottom line.

"My advice to resellers is to make sure they clearly understand why an employer wants to do HCI, then they know how to position the sale," says Norman Richardson, consumer sales director at Hewlett-Packard.

The HR director's enthusiasm will soon wane if you don't persuade many staff to take up HCI. Usually this is very much up to the reseller. Employers may help by providing facilities and mailing lists, but they don't want the overhead of producing marketing materials or spending time making the sale. It is not uncommon for the schemes to flounder because hardly any employees sign up.

"Once you're rolling out a scheme within an employer's workforce, there's a strong correlation between the quality of the internal marketing campaign and the level of take-up," says Simon Dawson, HCI Alliance director at Intel. "Demonstration days are very important and have a significant effect on take-up."

Resellers effectively need to sell HCI twice, first to the employer and then to its employees - a model often described as B2B2C. Few resellers do both well, and those that do have had to work at it.

RedPC has two sales teams: a corporate expert who sells the concept to the employer and a team with retail experience that does road shows and demos for staff. And OneCall always sends every employee a glossy brochure with all the paperwork and a letter of recommendation from the employer's chief executive.

Don't expect staff and their employers to have the same agenda. Companies like brand names with their aura of 'nobody ever got sacked for buying...' Consumers care more about value and support. "Employees are shrewd; they benchmark you by going to the high street," says James Galloway, projects director at Nicator.

The complexity of the sales process can pale into insignificance compared with the second major HCI issue: setting up the deal. This is make-or-break time, claims Peter Oliver, BT's HCI Alliance director.

"The resellers that have been successful are the ones that have been really on top of setting up the whole scheme," he says. "You need to walk through the door knowing how it all works. The VARs that have failed have lacked commitment."

The rules were simplified for this year's relaunch of HCI, but they still have to be understood and complied with. "Anything is simple once you know it, but it's a minefield until you get your head round it," warns Galloway.

To be legal, an HCI scheme must be set up as a hire agreement in compliance with the Consumer Credit Act (CCA) and approved by the Office of Fair Trading (OFT). Get it wrong and you may end up with a hire purchase agreement (ineligible for HCI), or employees may have the right to back out after 18 months (standard practice under the CCA unless you get an exemption from the OFT).

Getting clear information from the taxman can be difficult. "The government departments don't seem to talk to each other. I got conflicting information from different sources," says Taylor. Ultimately he found Customs and Excise pretty flexible about what constitutes business use of the system (enabling the employer to reclaim VAT), but he advises VARs to check.

The Inland Revenue officially supports HCI but tends not to be very chummy, resellers say. It won't vet schemes in advance but will examine them once running, so some employers like to run a pilot to make sure they have got the small print right.

Administering the scheme can be an even bigger headache than the red tape, says Richardson. The kit belongs to the employer, not the employees, so all the products have to be logged and tracked, on top of the HR and payroll changes required.

Small print and admin are the reseller's job, because employers don't want the hassle. "Resellers have to understand how to write a hire agreement because employers will expect them to do this," says Dawson. "They need to demonstrate that they can minimise the burden on the HR department and have zero impact on IT."

Zero impact on IT requires flawless fulfilment and support, so the third major HCI concern for resellers is providing a good consumer experience - another field where many business VARs lack experience. "Support is the key issue," says Taylor. "You have to be able to deal with someone who may not be particularly IT-literate phoning you in the evening."

If they do not get satisfaction, they will be on the phone to their firm's IT support team next morning. Then the employer will look incompetent for signing up a supplier that doesn't know its stuff, and the reseller will look in vain for a repeat contract. "Each employee needs to be treated like a corporate customer because they've got corporate clout," says Laity.

Even delivery can be a headache. Employers usually offer HCI in a fairly short window (a month, say), after which there is a mad rush to deliver systems to employees' home addresses, often outside office hours and with the option of set-up and basic training by a consumer-friendly expert.

Although the latter is a value-add opportunity, employees are reluctant to pay much for it.

Employers also expect commitment. "They expect full support for 36 months, so you can't walk away after the sale," says Galloway. "It doesn't get any easier through the life cycle of the service."

HCI are not a quick sale. Two or three months is common, and big employers are even slower. "The larger the organisation, the longer the sales cycle," says Prescott. "It was a real culture shock to find that corporates and local authorities could take months or even years to make up their minds."

SMEs may be quicker to sign up, but making a profit from them can be problematic. Do an HCI deal with a bank and if 15 per cent of staff (a common benchmark figure) take it up you will be shipping hundreds of systems.

Have the same success rate in a firm with 50 employees and you're selling seven PCs.

Early HCI have been virtually tailor-made, with bespoke marketing materials and product bundles. Yet margins may be little or no better than conventional hardware sales. "You've got to offer a good deal, and everything has to come within a £500-a-year benefit, so there isn't a lot of margin in there," says Laity.

This may be why many HCI have been with large employers, since most HCI resellers see it as mainly a volume business. A simplified, more packaged approach needs to be developed for the SME market.

onetheless, HCI are such a huge opportunity that resellers cannot afford to ignore them. Someone will soon be selling a lot of HCI systems, and the D-word is on many a lip. "It's prudent for a medium-sized-to-large reseller to know how to do HCI, because it will become a disadvantage if they can't do it," says Nick Eades, marketing director at Fujitsu Siemens.

"Dell is promoting HCI, and we will have to be very careful not to let it work its way into our accounts via that route."

Next week CRN will examine how resellers can make a success of HCI, and how they can find the right partners to help them. Please note: HCI is a complex subject. Resellers should do their own research and seek expert advice.

CONTACTS

Acer (01753) 699 200
www.acer.co.uk

DTI (020) 7215 5000
www.dti.gov.uk/hci

Fujitsu Siemens (01344) 475 000
www.fujitsu-siemens.co.uk

HCI Alliance (01753) 691 215
www.ukhomecomputing.co.uk

Hewlett-Packard (0845) 270 4215
www.hp.co.uk

Nicator (0141) 585 6433
www.nicator.co.uk

Office of Fair Trading (020) 7211 8000
www.oft.gov.uk

OneCallPC (0870) 777 0999
www.onecallpc.com

RedPC (0871) 424 2400
www.redpc.co.uk

Sol-Tec (0118) 951 4200
www.sol-tec.com