News Analysis: The direct answer to an indirect question

The channel is wondering what Compaq?s next move will be now it has decided to sell direct to SMEs

Compaq?s decision to dip its toe in the direct-selling waters has prompted the question: can a company that claims to be channel supportive sell its own kit without losing the support of its channel?

Compaq?s answer to its critics is that it is only selling a restricted range of products to a limited audience. The progress Dell has made in getting its message, and its machines, across to the small to medium enterprise (SME) market has troubled Compaq since early last year, and the vendor has made no secret of the fact that it has been planning a change in its business model to help it compete more effectively.

According to Jonathon Adams, Compaq commercial business unit director, the firm?s existing channel is not focused enough on the growing SME market, and has been forced to rethink its priorities. ?They?ve just not been targeting that market,? he said. ?Compaq will create a model at its own cost that works in that market. Nothing else will change.?

Orders taken by Compaq will be passed on to one or two selected resellers to provide the necessary fulfilment. Other dealers, which may feel they will miss out by not being selected as Compaq fulfilment partners, will be eligible to collect a finder?s fee if they pass customers on to the direct scheme.

But it looks as though little else will change. Compaq won?t be selling thousands of its own machines into the City and financial markets. Instead it will take orders from what it calls ?micro businesses? (with less than 10 employees) and sell them small quantities of product.

The vendor?s existing major channel partners don?t seem that upset by the move. Mike Norris, MD of Computacenter, Compaq?s largest reseller, said his target market is very different from that of the new Compaq direct sales division. ?As long as the division stays in the SME market, I don?t care. They?re aiming below my radar screen. Their plans do not bother me at all.?

But there is a veiled threat in Norris? support for Compaq?s plans. Although Computacenter wouldn?t be troubled by the prospect of Compaq selling a handful of PCs to small businesses, the vendor will encounter strong resistance if the scheme takes off, as the corporate resellers stand up to defend their territory from potential invasion.

Norris may insist that he has every faith in Compaq?s loyalty to the channel, but others are suspicious about the company?s next move.

Ingram Micro hardware business development manager Bruce Richardson agreed that Compaq had to do something to prevent Dell?s increasing market share, but said it could make future strategy decisions more difficult.

?If used properly, this could be a good idea and should put dealers in touch with customers on a local level. It will need the support of dealers in order to work. They?ll have to be prepared to go out there and look after their customers, it won?t work if they look upon it as another box-shifting exercise. But if it?s very successful, what will Compaq do next??

Compaq is unlikely to want to go head-to-head with the likes of Computacenter and Compel by trying to sell direct to larger customers. The failure of the IBM Direct programme should be warning enough of what can happen when a vendor tries to separate its channels. IBM UK general manager Mike Lunch is the first to admit that IBM Direct was an exercise in upsetting the channel while failing to sell enough kit.

?IBM abandoned the direct scheme over a year and a half ago. We walked away from it because it didn?t sell much kit and it caused us a lot of problems. We now just focus on telemarketing campaigns,? he said.

IBM has issued statements saying Compaq cannot avoid falling into the same trap. ?I am delighted that Compaq is moving away from its channel. I think this will prove to be a huge management distraction for them,? said Lunch.

His comments have provoked an angry response from Compaq MD Joe McNally, who is determined that the company?s scheme will not suffer the same fate as IBM Direct. ?IBM failed because they had a hybrid setup ? direct and indirect channels and never the twain shall meet.

?We will work hard at fostering direct relationships with customers at all levels, but we are still focused on working with our channel. Our large corporate customers talk to us direct, so why shouldn?t the smaller ones??

So is the corporate reseller community unduly worried by Compaq?s announcement that it will sell direct in some circumstances? Not really. The general consensus seems to be that the move is a fitting response to Dell?s market domination and is the one most likely to succeed. The combination of build-to-order, more marketing funds directed at SMEs, keener pricing and direct selling should at least give Compaq a fighting chance.

McNally said Compaq wants to look after Dell?s customers better than Dell can. This will only work if Compaq?s dealers put their weight behind the scheme and invest enough time and effort into making it work.

Customer service will become the key to success or failure. If Compaq can convince smaller resellers that they will benefit from getting out and about, talking to small business users about their needs, it may find it has hit on a recipe for success. But if those resellers feel they are having to compete with the vendor and switch allegiance to a different manufacturer, Compaq will have to rethink its plans.