COMPAQ - Dicing with Dell

With Compaq vying to steal Dell's thunder by targeting the small to medium business sector, the question is will the channel support the vendor's assault on the developing market?

When news began to leak out that Compaq was about to do somethingto medium business sector, the question is will the channel support the vendor's assault on the developing market? that sounded suspiciously like selling direct, reactions were mixed. At first, all anyone had to go on were rumours and speculation, which Compaq did its level best to quash, but by refusing to comment, it succeeded in adding fuel to the speculative fire.

The talking heads at Compaq lost control of the agenda, proving that no matter how much money you spend on PR and marketing, it's still possible to end up with plenty of egg on your face.

Small wonder then, that with no clear statements being issued, many Compaq resellers felt they were about to be sold down the river by a manufacturer that had vowed it would never sell direct.

In April 1997, when Compaq finally began revealing plans to es-tablish a more direct dialogue with users, the missives didn't get any clearer.

The vendor talked about an 'optimised customer delivery in-itiative', which would enable it to 'build a closer relationship with its customers' - the very customers with which the channel was already attempting to forge links.

Of course, having #22 million to spend on an all-singing, all-dancing call centre based in Glasgow helps when you are trying to encourage people to talk to you. As does setting up an extranet called Compaq Connect to pump customer leads and updated product information out to resellers all over the country.

Compaq claims to have more than 260 resellers signed to the Compaq Connect Website and is aiming to increase that number to 1,000 by the end of the year. This would represent more than half of the Compaq channel in the UK.

Since the initial furore over Compaq's desire to get closer to its users, things have gone quiet but work is still very much in progress. David Petts, commercial business unit director at Compaq, explains that the vendor was motivated by a desire to hit back at Dell in the small to medium business sector.

'This project is about putting together a programme to suit the needs of micro, small and medium businesses,' he says. 'The smaller business has very different motivation from the larger account. It tends not to go in for three to five-year strategic relationships with its suppliers.

When a small business buys IT, it's usually to address specific problems.

And once it's decided to go ahead and buy, it then has to go looking for it - Dell is very visible at this point. Compaq has always been less visible.'

Petts argues that the only way for Compaq to score in the small business market is to shed its image as a huge IT company that's too high and mighty to talk to anyone smaller than BT or Shell. In the touchy-feely 90s, what could be better than a spot of customer service to do just that?

But, he adds, there's more to this than a couple of hundred young Scots manning the phones in a building in the midst of Glasgow's red light district.

'It's about educating the smaller customer on the benefits of IT and matching that customer with the right reseller.'

Just for once, the right reseller isn't Computacenter. Compaq is looking for smaller resellers to sell to smaller companies; resellers that can take its lead and establish meaningful relationships with the sort of users who think Universal Serial Bus is a double-decker with a cornflakes ad on its side.

One reseller perfectly placed to get stuck into the rich pickings of the SMB market is Datapact, based in central London. It's been in business for about 10 years, has a staff of about 35 and sells a lot of Compaq.

Paul Yudt, sales director at Data-pact, says the smaller user presents particular problems to the reseller: 'A key part of our business is providing support and maintenance, and in that respect, the smaller user can be an unattractive proposition. We have to stipulate a minimum charge for support in our contracts, otherwise it's not worth our time taking the business. Of course, once you go down that road, the smaller user starts wondering if it's worth the extra cost.'

Yudt feels that Compaq will need to put its money where its mouth is if it wants its channel to be able to offer meaningful support to small businesses. 'If Compaq wants to attack that market and be a success, it will have to offer something else. We'd be happy to sell kit to small users but we'd need help from Compaq in providing support,' he says.

Datapact also highlights some of the problems particular to the smaller reseller. 'We haven't hooked up to Compaq Connect yet,' Yudt admits. 'We're having to focus all our energies on just expanding the business. I don't have the luxury of being able to set time aside to concentrate on something like this, much as I'd like.'

So while there's every reason to applaud Compaq's efforts to break into a developing market, there are those who remain unimpressed.

When it comes to the subject of supporting the small business user, another Compaq reseller based in London, who asked not to be named, is more vocal in his criticism. 'It is fatally flawed,' he says. 'The cost of supporting the small customer prevents the reseller from making any money out of taking on the business. Any business model aimed at small businesses has to address the point about the cost of providing support. Compaq should maybe think about redirecting marketing funds so the reseller can ease the pressure on his bottom line and afford to provide support.'

Petts is keen to play down the level of criticism aimed at the SMB initiative by the Compaq channel. 'Initially, there was a knee-jerk reaction from the channel,' he admits. 'But this has turned out to be less of a problem than it first appeared. There has always been a healthy level of cynicism in the channel. We had to look at our channel and ask: "Is it the right channel for these markets?" Where we've found holes, we've recruited resellers.

But we haven't lost any channel partners as a result of the move.'

However, support for Compaq's assault on the small business sector can be found in spades at Bytes Technology Group, where managing director Simon Ognall openly describes himself as 'the chairman of the Compaq fan club'. 'They have to go after the SMB market, it's the fastest growing sector in the UK - and they're going about it in the right way,' he believes.

'We were one of the first to be involved with Compaq Connect and it's been an unqualified success. If there's a hidden agenda to any of this, it's very well hidden.'

But Ognall concedes that the issue of support could be the fly in the ointment. 'A significant amount of education is needed in this market,' he says. 'That needs to be done by Compaq or by the channel - Compaq has the deep pockets.'

But does the SMB sector deserve the amount of attention being lavished on it by the manufacturers?

Surely the big money is where it has always been - with blue chip corporates in the City. Not so, says research analyst Clive Longbottom of CSL Consultancy Services. The year 2000 problem will put a stop to corporate spending on hardware for at least the next 12 months.

'Compaq has realised that 1999 will be a duff year for selling PCs to its big corporate customers. While making a move on the SMB market makes a lot of sense, it isn't going to be easy. Compaq is trying to do it without treading on its resellers' toes, but the fact remains that it's removing some of the channel's value add proposition,' he says.

Compaq may be trying to dress itself up like Dell to catch the eye of small users, but the two PC rivals are starting out from different points on the map. 'Getting a hybrid channel - that mix of direct and indirect - is easy for Dell, but going the other way, as Compaq is, has to be done very carefully,' Longbottom adds.

Compaq's chosen path is strewn with potential pitfalls, though. After investing huge amounts of hard-earned cash, the company can't afford for its updated model to be anything other than a raging success. This will mean further investment in advertising and marketing from a company facing flat revenue growth and which is still in the throes of the largest ever takeover in the computer industry.

The bigger the spend on pushing the profile of the call centre, the less cash is likely to be available for traditional channel marketing activity. At the top of the Compaq account food chain, Mike Norris, chief executive of Computacenter, is scornful of the rush to win over the small business user. 'No one has got a clue how to service and support the small user and still make money out of it,' he argues.

'The manufacturers need to get their prices down to the level of the PC assembler. And even then it's not as if any of them will be getting a head start in this market. They're all going about it in the same way.'

Compaq is certainly pleased with the progress it has made so far. As the man charged with the task of making it work, Petts points to some impressive figures to illustrate the success of the Compaq Connect programme.

'The first call was taken on 22 May 1997. Since then, 250,000 calls have been taken. Those are conversations with customers that we wouldn't have had but for the call centre. We're aiming for about 4,000 calls a day,' he says.

In the first half of 1998 alone, Petts claims the call centre was the first point of contact for #205 million worth of business. 'Anything we can do to make the process of selling Compaq easy has to be a good thing.'

The programme certainly has the right bells and whistles to help resellers push Compaq kit. One section of the Website, Solution Advisor, prompts the reseller to ask the customer a series of questions about what they had envisaged using the kit for. For the small business with no inherent IT awareness, this can be useful. Are you planning to access the internet?

Will email help you communicate with your customers? Do you want to automate your accounts? These are all questions that can help the reseller convince the customer that there's a Compaq machine to meet all their needs.

All of which is not a million miles away from the work of the PC assembler on the high street, building to order in the back of his shop. This fact hasn't escaped the attention of Jonathan Chapple, chairman of Equanet.

'At the bottom end of the market, you're not competing with Dell,' he says. 'Instead, you are competing with the local assembler/reseller. If Compaq wants to take on Dell in the SME PC market, it will need to streamline the costs and inefficiencies of the indirect channel.'

Dell is a name that crops up everywhere when you talk to people about Compaq. But that in itself isn't proof that Dell is eating Compaq's lunch, so what is all the fuss about ?

Martin Clarke, sales and marketing director of Lapland UK, has never pulled his punches where Compaq is concerned and is far from impressed by the idea of Dell being the channel's bete noire. 'Everyone's afraid of Dell, but it's just a knee-jerk reaction and it's ridiculous. When IBM owned the market, it was a fraction of the size it is now. When Compaq moved in on IBM, the market simply grew. All Dell will ever do is expand the market,' he says.

'What would help, though, is an extra tier in the Compaq channel. If you offer support, you get extra discount. That would make selling to and supporting the small user a viable option for the channel,' Clarke adds.

It would be unfair to say the jury is still out on the Compaq initiative; some people have most definitely arrived at a verdict, but opinion is as divided now as it was 18 months ago. The focus of that divided opinion has changed, though. Where once it was dis-belief because it looked as if Compaq was about to start selling direct, now it has shifted to the question of whether Compaq will offer financial help to support the small user.

If Dell really is the enemy, perhaps the channel - and those vendors that rely on it - should concentrate on what it can do that Dell can't.

Faster delivery times and a wide product selection are two areas where the channel can regularly kick Dell into touch. Maybe the time has come to sell on these strengths rather than focus on weaknesses, and to finally overcome the fear of Dell.