UK channel threatened by Compaq CTO programme

Hardware Vendor's decision to configure PCs quashes reseller hope of high margins.

Compaq resellers are fearing for their future following ther hope of high margins. disclosure that the vendor will bypass channel partners with the introduction of its own configure-to-order (CTO) programme in the UK.

The scheme, which is already rolling out in the US, was outlined by Compaq executives during a briefing in Houston last week. It caused an immediate furore among attending UK resellers, certain to lose out if forced to compete with the vendor for the high margins that configuration provides.

According to channel sources, Compaq's US representatives showed a 'stunning lack of diplomacy', when UK resellers expressed their resistance to the vendor's proposal. It is also understood that UK dealers who attended the briefing were asked to sign non-disclosure agreements.

One UK reseller who attended the briefing said: 'This has confirmed fears that Compaq wants to adopt a more direct model. When we and other resellers voiced our concern, we were basically told to like it or lump it.'

It also represents a U-turn by Compaq, which had previously proclaimed its commitment to use the channel for pre-configuring hardware with third-party components.

Clive Longbottom, industry analyst with CSL, said the move was inevitable: 'This is why Compaq bought Digital - so it can supply high-end customers using the Digital Consultancy Service as a direct route to market. This is where Compaq will clash head-to-head with the channel.'

He continued: 'The channel assembly model has turned players such as Compaq and HP into component brokers, but if they ship the kit to channel partners, they can respond faster and have more control over quality, as well as improving profits. But it can't do this without removing some value-add revenue from resellers.'

Longbottom said the vendor would use the Erskine factory in Scotland as the UK configuration centre and retain channel partners to deliver the goods to customers.

One leading Compaq dealer said: 'It's the bigger resellers who will be affected because we invested in configuration facilities. But I think some partners have jumped the gun. Compaq has not confirmed it will go ahead with this programme.'

In a prepared statement, a Compaq representative denied a final decision had been made: 'We have no current plans for CTO in the UK - the US representatives may have caused some confusion.'