PERSPECTIVES - Distributor viewpoint

If the direct sales market grows, the distributor response should be a concentration on private label sales and drop shipments.

According to one leading distributor, the turmoil in the desktopd be a concentration on private label sales and drop shipments. market is the fault of the vendors: 'They have simply not thought the situation through.

A lot of them have failed to differentiate their products.' As a result, Dell and other direct companies such as Tiny, Time, Opus and Viglen have made ground on the leading brands. 'Talk to all of the big guys right now - none of them are doing their numbers and they're all starting to panic.'

Of course, no one will admit to that and first-quarter figures would seem to belie such a statement.

With Compaq's first-quarter depression and an open admission that the company had four weeks' of stock in the channel - and distributors claiming it was much longer - what are the prospects for the second quarter and beyond?

For distributors, the changes taking place in the desktop market are profound. They stand to suffer more than any other channel players if vendors go direct. But that is still unlikely to happen and if the model changes, distributors could have an even more important role to play in fulfilling the needs of the reseller.

'It is very marginal at the bottom end of the market,' says Ian French, desktops and services director at Ideal Hardware. 'The area is still OK but it's not very exciting anymore, which is why we are working hard to position ourselves further up the food chain.'

French says dealers have more to offer these days than merely a box and there are opportunities if they look hard enough. 'The PC market is becoming highly segmented and resellers must understand this and work out where their niche markets are. Offering a PC is mundane, but in a niche sector, not only do you have a chance of selling it, you might even make some money out of it too.'

Distributors will clearly try to encourage niche market focus if it helps sell more PCs and French forecasts the development of various opportunities.

But the process does tend to lead dealers into areas that are not strictly anything to do with the standard desktop box, such as notebooks, servers and workstations.

However, the desktop PCs that resellers supply to customers have to come from somewhere and the credit has to be financed. Most vendors don't have the logistics, nor are they particularly willing to handle the money, so there is obviously a role for some distributors. One important trend is the drop-shipment and private label business. Distributors not only assemble and configure the systems, but they also send them direct to the customer on behalf of the reseller. And in the case of private label schemes, they even put the reseller's documentation on the boxes.

The private label and drop-shipment businesses are already showing quick growth in some broadline distributors and many are also participating in Hewlett Packard's Channel Assembly Programme, the IBM Authorised Assembler Programme and Compaq's channel-build scheme. Resellers are starting to realise that these businesses have a part to play - not only do they provide a service for them, they stem the move towards direct sales, too.

Another distributor comments: 'I see private label as an important counter-balance to any key direct sales move by the likes of IBM or Compaq. It's the stick with which the distribution trade can beat the manufacturer if it steps out of line. In time, I also imagine that large manufacturers will start to create private label brands of their own for the direct sales market.'

But there could be strong resistance in the channel to such a move, because it might cause problems for the distributors if they are close partners of the vendors in build-and-delivery programmes. Some distributors are dependent on white box business and have invested heavily in assembly and configuration facilities.

Yuri Pasea, managing director of KNS Distribution, believes that by the end of next year, the PC market will be more sharply focused on cost of ownership issues.

The channel model will change and refocus on what he describes as knowledge-based supply.

'Too many distributors have been guilty of simply being warehouses in the past. Instead, the knowledge-based model is all about distributors having a comprehensive, end-to-end understanding of every aspect and facet of the technology they supply,' explains Pasea.

This knowledge can then be used wherever it is needed and distilled to help both the reseller and the user during the search and selection process and implementation of projects. This is an important change, says Pasea, because it results from the move to a services-oriented model.

'With the PC channel rapidly changing into a market based on systems and support, as opposed to products, having the broadest knowledge possible will be absolutely key,' he explains. 'But perhaps more important will be the ability to disseminate that knowledge quickly and concisely where it is needed most. The channel organisations that best manage to come to terms with this concept will ultimately be the winners.'

Another distributor comments: 'E-commerce in the supply chain is about two things - lowering the cost of essential pre-sales activity and making it easier to buy. Where it achieves these criteria it will succeed. Where it does not, it will fail.

'However, professional buyers and consumers have different perceptions of what makes it easier to buy, and e-commerce offerings will succeed or fail depending on how well they respond to needs of their target customers.'

YEAR 2000

Opinion about the effect of the year 2000 on the market seems to be divided - and for good reason, says Dave Griffiths, channel marketing manager at Hewlett Packard. He thinks the market could fall one of two ways: 'Either the PC sector will slow down early in the year - detailed figures have yet to be published - or everyone will continue to buy right up until November or December before the slowdown kicks in.'

But which will it be? Griffiths believes the slowdown could already be happening and many users are electing to wait until next year before they begin to invest in upgraded hardware. However, there may also be a rush of last-minute and panic buying as smaller companies try to guard against possible disaster.

It is a hard call to make, he adds: 'It's not down to one or two specific issues, it's a general malaise among potential buyers. And contrary to what some may think, it's not so much down to concerns about the compliance of PCs as to the time they take to integrate with incumbent systems. Buyers simply aren't prepared to risk being in the middle of a changeover at the turn of the millennium.'

Either way, Griffiths says, the industry is probably looking at a slowdown in purchasing at some point in 1999. It may have already started and if it continues, vendors can only hope it will fuel a latent demand for PCs at the beginning of next year.

BRANDING

Branding is becoming more important, according to most desktop market observers. 'We are already noticing that more people are buying branded PCs and while that has long been the case for the bigger corporates, it now also rings true for the home and SME markets,' says Dave Griffiths, channel marketing manager at Hewlett Packard. 'Users are becoming more reliant on their PCs, so service, support, quality and reliability are increasingly big factors in their buying decisions. Those factors are not inherent in non-branded PCs. You only need to look at the off-the-page resellers, which are now moving away from white boxes because of lack of margin, to see evidence of this trend.'

The figures seem to confirm this. It is a slow process but, gradually, the share that the rest of the vendors outside the big players - Compaq, IBM, Dell, HP, Fujitsu, Siemens, Toshiba and Acer - is diminishing.

It is branding and not the direct model that is doing the damage, according to Steve Pavlik, professional desktop brand manager for EMEA at IBM. Dell, he says, is reputed to have shipped about 500,000 units in Europe in the first quarter of 1999 - about the same as IBM. But Compaq's shipment rate is about 1.7 million units.

'Will Dell get to one million units in EMEA? Yes, I can see that,' says Pavlik. 'The question is, will it be IBM and Compaq it takes market share from or will it be the rest of the market?'

ALTERNATIVE THINKING

Industrial PC use is an area of significant growth, especially in essential desktop environments, according to Tom Sloan, managing director of Industrial Computer Source. 'In sectors where organisations rely on maximum uptime for their desktops, many don't realise that a more robust machine can increase productivity and reduce cost of ownership in the longer term. It's not so much about which PC is better, just which is more appropriate under a particular set of circumstances.'

Jim Irving, channel director of Silicon Graphics, believes resellers should pay more attention to users' special needs. As part of a plan to compete in the more diverse sectors of the desktop market, SGI recently entered the low end of the workstation market with what is, effectively, an enhanced desktop PC.

'Rather than having just another "me too" product and adding even more product glut to an already saturated market, we felt it would be much more prudent to operate where we had some chance of competing and differentiating,' says Irving. 'I think this kind of diversification is going to be in evidence all over the PC market before too long, as vendors and OEMs realise they have to move into niche markets instead of going for volume. That's when resellers are going to have to be ready to change direction and allegiance at a moment's notice.'

Neal Grayston, managing director of Tulip Computers, believes this is also true of the education market, which is crying out to be explored by the channel as its horizons begin to expand beyond the traditional players and technologies.

'There is a big backlash against the larger incumbent educational players as schools and other educational institutions begin to wise up to their options,' he says. 'They are realising that smaller, more specialist niche companies may be able to offer them more for their money and are voting with their feet. This, along with the massive IT in schools initiative being touted by the government, is about to bring about an explosion in the market.

'It's not just about fulfilment either - there is a real chance to add significant value to the package and to your invoice.

The one factor that all educational establishments have in common is that they have a need for high-quality service, support and on site maintenance, so it's almost a captive market where adding services is concerned. I would even go so far as to say that if you're in the channel and you're not looking seriously at this opportunity, then you're missing a rather profitable trick.'