March 01, 1999, Issue: 235
Section: Opinion/Editorial
Compaq's Brisk Slap At Internet Retailers Was Cold But
Needed
Mark Harrington
The brisk slap that greeted Internet retailers in the form of termination letters
last month could only have been pulled off by Compaq Computer. And a
necessary slap it was.
Traditional retailers who have bit back their competitive instincts by
maintaining Compaq's minimum advertised pricing policies and playing by
other rules have been justifiably furious over the flagrant skirting of MAPs by
the likes of Buy.com.
Compaq insists the decision to re-evaluate the authorization agreements with
the online computer retailers has nothing to do with pricing, but try telling that
to the brick-and-mortar crowd.
Some suggest that when Compaq comes back to the e-table, it will sift more
carefully through its list of partners, perhaps eliminating one or two from its
roster of authorized retailers.
Such a move would be fair warning to all players that the Wild West mentality
prevalent in the Internet channel today has certain limitations. Call Compaq the
Wyatt Earp of the Web, looking to even the field.
Compaq's move sends just as strong a message to distributors eager to make
a silent bonanza by playing back room to overly generous front ends such as
Buy.com. The message: Keep your retail partners in line, or you'll suffer with
them when supplies dry up.
Compaq was wise in yanking the authorization of its soon-to-be subsidiary,
Shopping.com, but it made a basic error of omission by not ceasing sales on
its Compaq-branded sales site. That would have been a clear signal that its
intentions went fully beyond punishment for pricing infractions. (It's not too late
to suspend sales at Compaq.com until such time as the Internet channel is fully
evaluated.)
Other computer-product and software makers would do well to follow
Compaq's assessment of the Internet channel, and to afford the
brick-and-mortar retailers that helped establish them the consideration of an
equal playing field. To wait too long is to allow the Internet channel an unfair
window of opportunity to decimate a decade's cultivation of business.
The response to cut-throat Internet pricing in some ways resembles the
response to Best Buy's Concept II format a decade ago, when the retailer
gave away warranties, slashed prices and lived on grass-thin margins. Rival
retailers nearly lost their soup in outrage. Now, 10 years later, Best Buy
wouldn't dream of giving away a warranty, and while its pricing is aggressive,
its changing of the rules drastically changed the industry.
Internet retailers are a similarly bold lot, and their practices no doubt will alter
the industry. If they want to operate in perpetual red ink, that's their business,
but it's equally Compaq's right to slap them one for attempting to drag tangible
retail stores down with them.
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