When we were very young
It's time to wallow in nostalgia, read the roll-call of the departedand enjoy the benefits of hindsight. Simon Meredith peruses the very firstissue of PC Dealer and reflects on the way things have turned out forindividual companies and the industry in general since those early days ofinnocence
Looking back at issue one of PC Dealer, dated 15 October 1986, the first thing that strikes you is how different it all is today. But scratch a little below the surface and you find that in fact very little has changed.
The forces that drive the market are the same as they were 10 years ago.
IBM was then the market leader and the paper's front page lead story told readers about the company's plans to get resellers selling to large IBM installations through the customer fulfilment option (CFO). The scheme did not work out well in the long run, but it was significant in terms of general trends and the development of the market. CFO marked the beginning of IBM's efforts to get corporate companies buying PCs from dealers. Today, Computacenter, SCC, P&P and plenty of others can all testify to the ultimate success of these efforts over the decade.
On the magazine's back page was a story about Compaq cutting prices.
The cost of the Deskpro 286 has been slashed by almost 30 per cent in response to competitive pressure. Compaq also introduced a new model with a 286 processor, 20Mb hard disk and 1.2Mb floppy and 640K Ram: it was listed at u2,881.
Even more astonishing, the new addition to the 386-based Compaq range had a 70Mb hard disk and sold for u5,999 plus VAT.
Clearly price cuts were needed and Compaq's moves then were a sign of what was to come: constant competitive pressure and price reduction. With the cuts, so went the margin. Imagine: in 1986, as a Compaq dealer selling a 386 system you could have made at least u1,800 on the box alone. No wonder everyone wanted a piece of the action.
IBM and Compaq are still leaders in the PC market, but of course they have changed position. Go back to the early days and you see how their tactics and approach to the market differed and why they changed places around 1991.
IBM was aiming to retain a hold on its user base and taking a strategic approach to the business. Compaq had no such user base to worry about.
It simply built good machines and sold them at competitive rates. In the days when the market was flying, this was exactly what was required.
IBM's efforts over the years to keep resellers close to the company and to its customers worked well - the systems centre programmes that IBM UK pioneered were a great success. But IBM also struggled to give dealers the simplicity they needed and in the end the company had to alter its approach.
Now IBM is doing better than before and Compaq is having to become more strategic as it attempts to make the transformation from PC company to computer company. It will be interesting to see how the fortunes of two develop from here.
Vendors which were somewhere in-between, though, did not quite get it right. They can't be blamed for the massive problems that many resellers experienced during the recession of the early 1990s, but they were big companies which could have been expected to have more foresight and to help their partners in times of need. But their attitude was generally hands off when the trouble started. Yet, in the good times, vendors and resellers were great friends.
The back page of the first PC Dealer also featured a picture of Sir Edwin Nixon, chairman of IBM UK, shaking hands with Mike Sterland, MD of Personal Computers. In those days, Personal was one of IBM's most successful dealers and it had just gone public. Only three years later, it had disappeared, swallowed up by P&P as it struggled to cope with falling margins and a troubled economy.
Dealer failures were as common as the successes in those early days.
Inside the paper was a report about the new Computerland Heathrow store.
The partners in that business started full of hope in Feltham. But they did not last, in spite of having taken, even at this early stage, the sensible decision to focus their energies on a specialised vertical market (CAD).
Scanning the rest of the first issue, you come across many other names once well-known names: Kaypro, Victor, Commodore, Ajwad, Wells American and Torch. Where are they now? Some of these companies were significant players in the early days of the dealer business, but competition got them all in the end.
Some lasted hardly any time at all. Wells, for example, tried desperately hard with its 'goodbye IBM' advertising campaign, but few dealers took a shine to it. Even in those days, it was hard for a brand that was not already working to take hold.
One company that figured particularly strongly in issue one and is still around today is Apricot. It was well established and well liked in the dealer community but was desperately trying to rebuild after it had admitted its mistakes and finally gone IBM compatible.
PC Dealer's first issue announced Apricot's entry into the 386 market.
Apricot was still playing catch-up with IBM and Compaq though and little has changed. Apricot's machines had more style and tried to do more than the standard PC. This approach worked some, but not all, of the time.
Apricot, in its new guise as the Mitsubishi Electric PC Company, is still using much the same formula, which has seen it do well, but not consistently, and has never made it a high-volume player. Perhaps the Japanese money will change that.
Olivetti was another big name for the dealer community 10 years ago.
It is still in the news, of course, but for all the wrong reasons. According to that first issue, Olivetti, like Compaq, was cutting prices. And, as for Compaq, this competitive approach seemed to work for a number of years.
But unlike Compaq, Olivetti failed to come up with the right machines at the right time. After its big hit, the M24, Olivetti never really regained its status as a force in the PC market.
Although nobody could have predicted the major failures that were to come over the next few years at the time PC Dealer was launched, already fears about the demise of the dealer were being expressed. One reason for this was the spectacular and visible failure of the 'glass-on-the-street' concept.
On page 2 of issue one, PC Dealer carried a story about the closure of the London Entre store in St James's. The Entre franchise chain had been struggling and only two weeks before, Derek Lewis' Combro had bought up the 11 remaining UK outlets (except for the London store). Within a few months the Entre stores and others like Micro Age had disappeared.
These businesses failed because there is no such thing as walk-in business.
The retail outlets we have now are more drive-in than walk-in. Even today, the concept of buying from a shop meets resistance from businesses, which usually prefer to deal with an office-based dealers. Furthermore in 1986, PCs were scarcely used in the home. They also cost much more in real terms.
All these factors helped to swell the number of failures in the dealer market, which Romtec had measured at 10 per cent and rising over the Q2 period of 1986. More dealers were already moving into value-added areas of software development and support.
In PC Dealer's first Viewpoint article, leading industry figures were asked to give their views on the state of the market. There were prophetic words from Joe McNally, MD of Compaq. He said: 'There's very much over-capacity - too many dealers chasing too few customers. And there's too much discounting which is forcing people out of business.'
One of the reasons for the discounting was Amstrad, which had made the most of high prices to come into the market and rattle cages. Speaking in the same article, Amstrad MD Alan Sugar said there was no problem with demand, only with capacity. 'We have a man based in Hong Kong. What he's telling us is that the best weekly production out of anywhere is less than 200 pieces. Apart from large manufacturers, all the rest are very very small.'
Compaq for one was planning a move upmarket. But Amstrad was to change the situation over the next few months as it found the production capacity and flooded the market with its low-cost systems. There is no question that it accelerated the market, and forced the major vendors to re-think their pricing.
It seems astonishing now that in 1986 and even for sometime after, we were still talking about systems like the Atari 1040 and the Commodore Amiga as products dealers might sell. They were totally incompatible with PCs, but Atari and Commodore had been big names in the microcomputer business.
PCs, however, gradually took over and they soon faded as forces in the channel.
Strange as it might seem now, there were only passing mentions of companies like Microsoft and Novell in the first issue of PC Dealer. We were still waiting for Dos 5 at the time, and Microsoft had not yet delivered the system that was supposed to make the most of the 386 chip running at amazing speeds of up to 32MHz.
Novell was mentioned in the product news because of the release of its asynchronous communications server which would support up to 12 remote connections. Elsewhere Novell was also promising dealers better terms and conditions, having just turned itself into a limited company. UK prices would no longer be affected by fluctuations in the US dollar, the company assured PC Dealer. Novell could not have known that lower dollar prices and grey imports were to wreak havoc on the channel in years to come.
There was very little sign then of just how significant Novell and Microsoft would become to the market. No one foresaw the role that distributors and large hybrid dealers were to play over the decade. DDL, the ill-fated distribution arm of MBS, was planning roadshows but First Software (later to become Frontline), Softsel (now Merisel), Northamber and P&P were hardly mentioned.
However, Michael Kane, then director of European operations at Softsel, did feature in the Viewpoint section along with McNally and Sugar. His words were eerily prophetic.
He said: 'If the machines proliferate as we expect them to, we're looking at selling them in supermarket-type quantities. The burden is on the manufacturer to produce cost-effectively, to allow for the hierarchy of distribution and sales, if he wants a good representation in the market. But I don't see any significant changes in the pricing structure, although we can't continue with some of the suicidal discounting.'
We experienced the supermarket quantities, but unfortunately we also had the supermarket pricing and the discounting to go with it. Most manufacturers did not get their distribution polices right at all and many are still struggling to get their third-party models working to maximum effect.
It is interesting to note that the companies that have stuck to their models seem to have done best. Compaq and Microsoft have not changed their strategies that much over the years and, although it took a while for Compaq to move towards distribution, the consistency of its policies appears to have worked.
The suicidal discount has, of course, put paid to many a distributor over the years. Of those companies leading the way in 1986, only Northamber has remained more or less unchanged over the decade. P&P pulled out of distribution, First became Frontline and, quite early on, part of Computer 2000. Softsel, at least in Europe, has now become part of the CHS Group.
The margins debate, of course, has never died down and it seems surprising that even after 10 years, many of the key issues afflicting the channel have still not been reconciled. Another figure quoted in PC Dealer's first Viewpoint column was Alan Clarke, marketing manager of Ferrari Software, who pointed out that financing was a problem.
'Many dealers already have high gearing and one solution is to work more closely with distributors who provide funding for the move towards selling solutions,' he said.
Well, which distributors were these? Perhaps Clarke was referring to some of the schemes Ferrari was trying to promote at the time? Whether he was or not, the comment was right on the mark. The channel was strapped for cash and many businesses over-traded for months at a time.
The recession put a stop to all that for a while but the financing issue is once again coming to the fore. With organisations like GE Capital stepping into the market, it may be that we are about to see a radical shift in the way the channel is funded.
It seems incredible that issues that were being raised in October 1986 are yet to be fully resolved. It raises the question of whether the market PC Dealer reflects to day really is very much more mature than the one we entered 10 years ago.
Ten years on, the first issue of PC Dealer makes an interesting read.
There was not much of it - 32 pages not much bigger than A4 - but it was already accurately reflecting into the trends in the market.
Looking back now you can see that it was also frighteningly indicative of what was to come - a bigger, faster market in which only the strong would survive and only those who are prepared to meet new challenges and respond to change would prosper.