Entering the electronic commerce environment, Cabletron Systems unveiled an electronic commerce initiative that will reshape the way the company does business -- changing its relationships with customers, employees, partners and suppliers. The program's cornerstone is CabletronCommerce, a new, global electronic business site that provides customers and partners with the ability to easily configure, price and purchase networking equipment over the Internet."
ANALYTICAL SUMMARY:
We are positive on this latest announcement by Cabletron. The move was expected, and is consistent with Cabletron's key strategy to reposition its sales and distribution focus. As such, it should help bolster the company's overall position in the market:
The move will have a moderate/high impact on the industry. Competitors may be able to pick up a few disgruntled Cabletron accounts, but in general Cabletron's move is aligned to an industry trend that its competitors are also following (Cisco already has a web-based service and Bay Networks has just announced its own version). While its competitors will not need to react to this announcement directly, they will have to take Cabletron's new strategy into account when evaluating the competitive threat that Don Reed's new organization now poses.
The move is of very high importance to Cabletron itself as it is part of a broader strategy shift. If the company misjudges the reaction of its customer base, it could lose clients. As such, Cabletron must tread carefully and spend a considerable effort on educating its customers as to the benefits of both the Web service (for the top 600 customers) and indirect channels for the remaining customers.
VENDOR NAME: Cabletron Systems
SYMBOL: CS
ANALYSIS:
INDUSTRY IMPORTANCE RATING: Moderate/High.
This announcement is of moderate/high importance to the network infrastructure industry. This is a significant move for Cabletron and shows that the company is willing to take the dramatic steps needed to improve the company's focus. While there is no need to directly react to this announcement, competitors show begin to reevaluate the threat that Cabletron now poses to their markets and should maintain a close watch on how this strategy pans out.
Cabletron's competitors may be able to pick up a few disgruntled Cabletron customers that have been moved out into the indirect channels, rather than dealing with the company directly. However, if Cabletron educates its customer base adequately as to the benefits of this repositioning, the company should not suffer a significant loss.
Companies such as Cisco already have established Internet-based services for their own customer bases and so there is a precedent for this move. Further, Bay Networks has just announced its own web-based service and as such, Cabletron's move is simply a sign of the times.
From the Internet commerce side of the picture, CabletronCommerce becomes another proof of concept that the Internet as a medium is presently best used as a business-to-business, self-serve trading medium. It should also prove a small boost for vendors of commerce support solutions.
VENDOR IMPORTANCE RATING: Very High.
This is of very high importance to Cabletron, as it is part of a broader strategy to rationalize the ongoing costs related to satisfying its customers' needs:
Competitively, as the momentum behind Internet-based direct ordering increases, along with the integration of these systems to enterprise purchasing and sales operations, Cabletron was driven to take this action to remain competitive with Cisco and Bay. We see its current offering as adequate to retain customers that might otherwise have switched vendors for some products based on these electronic ordering requirements.
By providing the top 600 customers with a Web-based service (while delegating all of the smaller customers to Cabletron's newly developed channels), Cabletron will be able to lower the cost of each sale, as well as improving the turn- around time of each order.
CURRENT PERSPECTIVE RATING: Positive.
Cabletron is in the throes of revamping its sales strategy as part of a wider strategy of refocusing the company's direction to make it more profitable and more diversified. As part of this strategy, Cabletron has recently reduced the workforce by approximately 600 people (see "Cabletron Reduces Staff; Realigns Infrastructure," ID: 171216-0005-01.NV) and merged with Digital Networks Product Group (see "Cabletron Acquires Digital Networking Group," ID 171125-0001-01.NV). The latter move has given Cabletron a number of valuable distribution channels, as well as the additional low-end products.
The company has now diversified itself of its smaller customers (from a sales perspective), retaining direct contact with the top 600 clients only. These 600 clients are, according to Cabletron, responsible for about 80% of the company's revenue. The smaller clients have now been pushed out to Cabletron's new channels, such as AnswerThink and Tech Data, as well as the channels acquired via the Digital merger.
The new Web site service will be used to further reduce Cabletron's sales and support overheads. The top 600 clients will be given access to the new service (we expect this to happen by mid-April) as well as being used by the distributors as a means for them to order new products. Cabletron expects to reposition its sales team to explore vertical markets, concentrating on selling "solutions" rather than products per se.
Momentum is growing quickly in the areas of totally electronic, Internet-based procurement, and vendors of any sort serving Fortune 500 customers will soon be chosen in part based on their ability to deliver sophisticated online ordering. Thus, Cabletron has take a step to actually defend market share rather than just extend an experimental purchasing interface to customers in order to slowly shift sales channels. In this 1.0 release, Cabletron has implemented sufficient configuration and quote building utilities and customer service channels as to make this a successful effort based on the quality of forthcoming support and marketing.
TOP COMPETITIVE POSITIVES:
The Web-based service reduces the cost of managing Cabletron's existing customer base, and reduces the sales/support overhead, an important move that should help please the Street and financial community.
The Web service provides value-add to the customer, simplifying the purchase process.
Pushing the remaining (smaller) customers out to the channels allows Cabletron to focus on new business prospects while "feeding" its new channels a ready set of existing customers.
Cabletron is able to defend market share by offering competitive online sales channels.
TOP COMPETITIVE CONCERNS:
While this is a positive move for Cabletron, we do have some competitive concerns:
It is unclear how effective Cabletron will be at persuading its top 600 customers to use the web-based service when they are currently used to picking up the phone and dealing directly with an account manager.
Cabletron intends to reposition its sales force within vertical markets. This will require significant retraining of the sales force and it too early to judge how effective this will be.
Success will be based in large part on the strength of Cabletron's support of this channel and successful customer migration.
TOP VENDOR SUPPORT ACTIONS:
Cabletron must consider the following actions in order to fully leverage this new service:
Order tracking must be added to the Web site. We expect to see this in the next release of the Web site, due in April.
Explain in more detail how the top 600 customers will be dealt with: Is the web site truly "value-add" or an alternative for customer-to-sales interaction. To this end, Cabletron must take the time to educate these 600 customers as to the benefits of the new service.
Educate the smaller customers as to the benefits of moving out to indirect channels.
TOP COMPETITOR ACTIONS:
As this announcement is of moderate to high importance to the industry, we do expect Cabletron's competitors to view the company in a new light from a competitive positioning perspective:
Competitors should be careful how they react to this announcement, as development of a Web-based service is becoming a popular first contact approach for current customers. Cisco claims to enjoy great success with its own web service and Bay Networks has just announced its own moves in this direction. It is likely that both of these firms will focus on their own sites as being "leaders" in both time and functionality.
Competitors should focus on Cabletron's smaller clients that have now been pushed out into the channels. There may be a level of discontent (and bruised egos) at being relegated to a third party contact point, rather than dealing with Cabletron directly.
TOP USER ACTIONS:
We recommend the following actions be considered by current/potential Cabletron customers:
The top 600 customers should treat this as a value-add proposition, not a replacement for direct interaction with Cabletron account managers. These customers should extract assurances from Cabletron that direct access to sales staff will still be available, if so desired.
Customers being pushed out into the channels should adopt a wait and see approach. We expect the quality of service to be equal to, if not better, than it was with Cabletron directly - a case of a big fish in a small pond.
Users should remember that Cabletron is not unique with this move. Cisco already uses a Web site to manage its customer base, as well as using indirect channels (notably Ingram and Tech Data).
BACKGROUND INFORMATION:
REPORT ID:180309-0004-01.NV
EVENT:Cabletron Simplifies Business With E-commerce Initiative
REPORT TYPE:Competitive Intelligence
TYPE OF EVENT:Corporate Announcement
VENDORS:Cabletron Systems
COMPETITORS:Cisco, Bay Networks, 3Com, others
MARKET SEGMENT:Commerce Tools & Platforms, Intranet Switching,
TECHNOLOGY:Internets,
TARGET MARKETS:N/A
DATE OF EVENT:March 09, 1998
DATE OF ANALYSIS:March 12, 1998
Related Reports:
171125-0001-01.NV Cabletron Acquires Digital Networking Unit
171216-0005-01.NV Cabletron Reduces Staff; Realigns Infrastructure
All Materials Copyright 1997, 1998 CURRENT ANALYSIS, INC. |
