Hi Thread,
Oooops! Don't know how I missed this one - sorry for the delay. He makes some good points. Thoughts anyone?
K
In a two-way horse race with Dell, Compaq's move Wednesday showed that it still doesn't get the realities of selling computers over the Web.
Tech Savvy: Compaq Takes On Dell, Online
By Jim Seymour
Special to TheStreet.com
11/13/98 3:11 PM ET
You can't do it halfway, Eckhard.
That's the lesson Compaq (CPQ:NYSE) and its shareholders are about to learn from its halfhearted move into the direct channel, called Direct Plus, announced Wednesday.
The long-awaited initiative follows a previous failed effort to sell directly, via an online catalog. With few sales, and bludgeoned by its frightened dealers and distributors, Compaq pulled that one. The question is: Will it bail again?
The answer is no. A company like Compaq simply HAS to be on the Web these days. But in a two-way horse race with Dell (DELL:Nasdaq), the acknowledged leader in direct PC sales via the Web, Compaq's move Wednesday showed that it still doesn't get the realities of selling computers over the Web.
Eight principles rule in PC sales on the Web. Compaq's efforts go, at best, two for eight. Or zero for eight, depending on how you're counting. That's a Class D minor-league average, far from the bigs.
1) You can't ghettoize products or customers. Compaq says it's created a whole new line of desktop PCs, borrowing the Prosignia name from one of its successful server lines, for its new Web-sales business. And if you look around online, you can find most other Compaq products. But the emphasis is on moving the Web-only models and configurations.
By contrast, Dell offers everything it makes on its Web site, upfront. Customers don't want to be pigeonholed; why limit their chances to give you money? Dell asks for the order, period -- and gets it. Advantage: Dell.
2) You can't be a success in the Internet marketplace by trying to protect traditional distribution channels. But that's just what Compaq is doing (and why it's ghettoized its Web-marketed products): trying to reassure its traditional resellers. Web marketing of technology products is rapidly becoming an all-or-nothing game. In its Q3 earnings announcement Thursday, Dell said it's turning $10 million a day on their Web site; Michael Dell says he's shooting for 50% of Dell sales coming from the Web in 24 months. Cisco (CSCO:Nasdaq) is on the same track. Compaq's numbers, as a very green rookie, are trivial. Advantage: Dell.
3) You can't throw away margins. Yet Compaq is paying resellers who direct customers to the Direct Plus site from 6% to 10% per completed sale. With Dell and others paying 0% -- in a business where price deltas of just 2% to 5% can make a big difference -- Compaq's effort to buy reseller peace via the Barney model ("I love you, you love me, we're a happy family") is throwing away shareholders' dollars. Advantage: Dell.
4) You've got to offer price advantages -- if you claim them. When I went to Compaq's new Web-direct page the night of the announcement, I found Compaq's new prices very close to Dell's. In one case, for identically configured Pentium 350Mhz, Compaq was at $1,668 versus Dell's $1,658 -- close enough. You don't have to have the lowest prices to succeed on the Web.
Amazon can be a pretty expensive place to buy a book, if you start comparing -- but if you claim the low-price turf, you've gotta defend it, with repeated price cuts. Will Compaq continue to slash? What will that do to its non-direct-channel prices? Advantage: tie.
5) Just as with the "three Ls" of real estate, to be a success on the Web you've gotta Personalize, Personalize, Personalize. Both Dell and Compaq do a pretty good job of interactive pricing; Compaq even adjusts the price for your configuration changes as you make them, while Dell forces you to click a button to see the new price. Neither goes beyond that level of interaction to build a real bond with individual customers. Advantage: tie.
6) Corporate buyers need special care. Dell's brilliant move here was to offer to create closed, custom mini-sites for corporate accounts, so those companies' employees and managers can buy directly from a company-specific mini-site, which lists only approved models and configurations, at pre-negotiated prices. This "Premier Sites" program is little-known -- but Dell already has 8,500 of these private mini-sites and is turning millions of dollars a day from the idea. Compaq may do the same, in time but, for now, has nothing even close. Advantage: Dell.
7) Focus, focus, focus. Successful e-commerce businesses have laser-like focus. Dell's online focus has been the large business customer, and it's succeeded brilliantly -- even though a significant percentage of online sales are to individuals. Compaq says it also wants to focus on business buyers, especially medium-to-small-business buyers. But it's put up a confusing welter of online storefronts at compaq.com: Compaq Direct Plus, Compaq Online At Home Store, Compaq Government/Educational/Medical Store, even its factory outlet for overstock and B-goods, Compaq Works. "Help!" the customer thinks. "Where do I go? Which store has the best prices? Huh?" Advantage: Dell.
8) It ain't easy. As Compaq learned when it tried to match Dell's build-to-order and just-in-time inventory systems -- the former, at least, is still a struggle for them -- New Economy PC manufacturing and online sales aren't as easy as it looks. Dell has a substantial lead over Compaq and everyone else in just-in-time (JIT) inventory and build, and an even bigger lead in Web commerce. Putting up a Web site isn't the trick: wringing revenues from it is. Advantage: Dell.
Sooner or later, Compaq is going to get Web sales right: online sales are too important to continue the blundering and tentativeness. But Direct Plus -- and the other storefronts Compaq has up aren't the Dell-beater Compaq shareholders want -- at least for now.
Jim Seymour is president of The Seymour Group, Inc., an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a long-time columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At the time of publication, neither Seymour nor Seymour Group holds any positions in the companies discussed in this column. While he cannot provide investment advice or recommendations, he invites you to comments by sending a letter to TheStreet.com at feedback@thestreet.c0m.
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