DIRECT MODEL - Walking all over you
Resellers are feeling increasingly threatened by vendors who deal direct but most are too scared to speak out against the companies that provide their business.
The channel is running scared but dare not speak out against one ofirect but most are too scared to speak out against the companies that provide their business. the biggest threats facing it today. Dealers are being stabbed in the back by vendors flexing their muscles. They are forced to compete with the success of the direct model and are desperate not to get left behind in the face of Dell's success. As the top three manufacturers battle it out for channel supremacy, smaller dealers are powerless and worried they could be ousted by an increasing switch towards a direct model.
The difficulties resellers face were highlighted this year when a Compaq reseller approached the vendor with an order of more than 2,000 computers, asking for a discount he was entitled to on an order of this size. Compaq was happy to oblige, but on condition that the dealer revealed the customer's name. When he withheld the information, Compaq refused to give him the discount. The reseller later claimed that when he finally turned over the name, he lost the deal.
One industry source says: 'It's a standard thing - the vendor contacts the customer, all the leading manufacturers do it. Once they get the customer name, they offer to sell through another reseller. It's done blatantly and resellers know it goes on. They lose deals but have no power to stop it.'
Many dealers claim to have been in similar positions. After the dealer has spent many hours wooing the client, the vendor snaps up the deal by going behind the reseller's back. In one reseller's opinion: 'Basically, vendors are trying to squeeze the smaller resellers out of the market.'
Another reseller, who refuses to be named, says dealers are scared to speak out against vendors: 'They are our bread and butter. We are generally only reselling other people's products and are reliant on the manufacturers and their financial support.'
Barry Neill, managing director of Reliance Computers, says he too has heard of cases where customers have been pulled out from under a reseller: 'The key is to try to make vendors such as IBM and Compaq sign a non-disclosure agreement before revealing who the prospective customer is.'
Compaq says it deals direct in an effort to team customers with the most appropriate reseller - with the right skills, regional position and experience.
But as one industry source points out: 'It's not up to the vendor to choose the reseller. If you are qualified to sell the kit, the rest is no longer their affair. This is a massive cover-up so they can feather their own nests and drive smaller resellers out of business.'
Resellers feel just as threatened by the actions of Compaq rival IBM.
In fact, Big Blue is generally seen as one of the worst offenders in the channel, described by one dealer as 'the most unfriendly of vendors'.
Resellers hit out this year at IBM's disregard for the channel after a letter changing some of its terms and conditions was labelled 'ambiguous' and 'worrying' by recipients (PC Dealer, 3 June). The changes to the Business Partner Agreement put pressure on smaller resellers to reveal company details, including 'contact names', sparking fears that the manufacturer was preparing the ground to sell direct. It seemed another case of Big Blue throwing its weight around and many resellers chose to ignore the contract amendments.
The letter's wording caused a wave of confusion, with resellers unsure which 'contact names' the revised Ts&Cs would require them to hand over.
Fearing it was a request for customer lists, many expressed outrage, refusing to hand over their most valuable asset. The uses to which IBM said this data could be put - 'any other business purpose' - were equally ambiguous.
The final part of the amendment moved the responsibility for divulging names to the reseller. It stipulated that the reseller agrees to 'inform that person of the purpose for which such data is disclosed to us'.
Some resellers shrugged the letter off - many threw it out. But George Gardiner, IT law partner at Tarlo Lyons solicitors, warns: 'In this letter, IBM is saying: "Here are the amendments and if your company doesn't object, then the law will presume you've accepted it."' In other words, it was up to the customers to write back and object. He adds: 'Doing nothing is not the answer. You could be consenting by burying your head in the sand.' Which is what the resellers did - according to IBM, by not replying resellers had 'agreed to conform to our request'.
Other resellers challenged the vendor about the changes. They were told IBM was being forced to make the alterations as part of an unspecified European Union directive. When approached, the EU said the only measure it could be referring to was 'a directive on protection of personal data'.
IBM later confirmed this.
The vendor subsequently sent letters to resellers who had raised concerns over the wording of the clause, admitting some had found it ambiguous.
An IBM representative told PC Dealer that the 'contact names' actually referred to employees of the reseller, not a customer list. But resellers are sceptical about where such moves might lead. One dealer says: 'There's always the worry that your customer list will end up in the hands of a direct vendor, with customers starting to receive information directly.'
Despite the clarification, which IBM says was only issued to those resellers that voiced their concerns, the letters highlighted the fact that resellers are practically powerless in the face of IBM's empire.
Most of the channel players contacted by PC Dealer for this article refused to air their grievances on record. Many made complaints about the vendor - in particular its poor product supply and lack of regard for the channel - in confidence, but the majority were afraid to speak out. In particular, resellers faulted IBM for its lack of communication. According to industry sources, IBM is notorious for going ahead with plans without consulting resellers first.
Some channel players, however, are still flying the flag for IBM. Shane Gallagher, managing director of First Stop Computer Group, says he received the letter, but did not have a problem with it. 'I think people are reading too much into this. It's a lot of fuss about nothing,' he argues.
But it is not the first time IBM has been accused of using unfair business tactics. The manufacturer recently had a formal complaint issued against it via the European Commission. AllVoice Computing, a Devon-based software developer, accused IBM of going back on its word and abusing its 'dominant position' contrary to Article 86 in the EC Treaty and/or Article 54 in the EEA Agreement.
The complaint, issued in January, claimed confidential information, including unreleased versions of its software, was released to the vendor on the understanding that it would not be used by IBM to produce competing software (PC Dealer, 10 June). AllVoice also accused IBM of using predatory tactics to crush its voice recognition business.
The 109-page complaint also alleged that IBM acquired AllVoice customer details by using its powerful position and that it abusively undermines the reseller network. Big Blue refuses to comment, as the case is ongoing.
Reliance Computers' Neill has agreed to go on record because he believes vendors 'need to have their cage rattled'. He argues: 'IBM and Compaq may say they value smaller resellers, but it's all lip-service. They only care about the market sector and distributors, not about how goods are sold in the end.' Neill adds that the situation benefits no one, and that if dealers got more support, vendors would ultimately sell more kit.
Vince Smith, IBM marketing programmes manager, refuses to speculate on why resellers generally refuse speak out against the manufacturer, but says: 'I doubt if they are scared of IBM. We have tens of thousands of resellers and there will always be some who don't think highly of IBM.' He insists that the vendor is not interested in selling direct.
Howard Seabrook, research director at the Gartner Group, says vendors' desires to compete on cost, looking at manufacturing, service and investment levels, result from having to compete with Dell. He adds: 'Vendors are putting the squeeze on their own Ts&Cs of doing business because of this competition. However, this can be perceived by resellers as bullying.'
One reseller complains that his company is too small to be of significance to vendors, saying that, for manufacturers, 'we don't exist. I don't have a high opinion of them, they are only an inconvenience.'
Seabrook agrees and predicts 'troubled times ahead' for smaller resellers, saying the manufacturers' aims to clean up their supply chain have led to few smaller resellers having contact with the likes of IBM or Compaq.
'There is little or no vendor loyalty to smaller resellers. Few even have direct relationship with vendors anymore,' he adds.
Smith disagrees, arguing that IBM does hold smaller resellers in high regard and that vendor loyalty exists. However, he concedes: 'It would be fair to say we no longer have a client relationship with the smaller reseller. This is due to the increasing number of dealers. They need more support and guidance - this is now fulfilled through distributors.'
Seabrook warns that the balance of power is changing and the huge amount of consolidation taking place is having two effects: 'First, the power is moving to the big distributors. The smaller reseller is very dependent on them and it is up to the distributors whether or not they want to deal with the smaller ones. The cost of doing business with them is very high and vendors often won't deal with them.
'Second, the large corporate resellers have been involved in a lot of acquisitions and consolidation, especially in Europe. They can exercise a lot of power back to vendors as they need them,' he adds.
But where does this leave the smaller reseller? One industry source believes it's clear: 'Why do manufacturers walk all over smaller resellers? Because they can.'
Seabrook warns: 'The greed of vendors, pull from customers and fear of losing business to Dell all conspire to breed uncertainty. It's very finely balanced as to who is going to win or lose the battle.'