All's not well with CPQ's DirectPlus!!!
Fez
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November 30, 1998, Issue: 819
Section: Channels
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Reading The Tea Leaves From Compaq's Shift In Models
Marty Wolf
Houston, we have a problem. Compaq recently announced that it is going to emphasize direct selling-the focus for now being small and midsize businesses-and that it is creating a whole new line, the ProSignia, to compete with the Dell Dimension line. If they had not protested so much about their channel cooperative and inclusive plans, I might not feel this way.
It was not that long ago that Compaq Chief Executive Eckhard Pfeiffer had all the channel senior executives in Houston for a meeting immediately after the Digital acquisition and allayed their growing concerns. That was then.
I do think VARs, large and small, can and should plan their investments and strategies around this announcement from Houston and the ones to follow. Many will use this to change their models and enhance profitability. Others will get hammered and see their product margins decline further. However, since it doesn't do any good to second-guess them, and since they did not solicit my input, the issue at hand is: What does it mean?
First, some of the largest accounts that already have been moved to direct purchasing have complained, and some have even given an indication of their desire for the old way. If it is not seamless for large customers on orders and rollouts, what makes anyone think the onesy-twosy market will be any easier?
I'm a onesy-twosy customer myself, but just because we don't order by the pound doesn't mean we have low expectations. As you know, there is no shortage of options to purchase technology. Expect to lower your Compaq, then PC, margin and have more unhappy customers.
Second, the largest integrators, such as EDS, CompuCom and GE, will not be the most affected. Their business models already have been impacted and are in various stages of transformation. The big losers are the people who have been throwing 7's and 11's for years-the national distributors.
The top four sell approximately $4 billion of Compaq product-much of it into this newly contested market space. Expect them to put up a good fight, but lose a lot of that volume as superior price and availability trump good customer service and inconsistent availability.
Third, distributors can't take anywhere near the cost out to support the potential lost business, so look for them to replace it with-in this order-Hewlett-Packard or white boxes. A few weeks ago, Tom Tarasoff, general manager of Hewlett-Packard's Computer Products Organization, stopped in our headquarters for an informal channel review. While HP has its own challenges, they still have the best chance-through price, brand, logistics, U.S. management and commitment-to service the channel. Tom represents that commitment.
Should HP seize the opportunity, it has a chance to considerably gain on Dell and Compaq. It may even rival Compaq's 386 introduction.
Clearly, the white-box opportunity will gain in importance. Witness the quiet announcements out of Tech Data and Ingram Micro over the past quarter. Further, when Ingram Micro takes one of its proven stars, Doug Antone, and says, "Let's build us some white boxes," the lines have been drawn.
Forewarned is forearmed. Sell services and control your customer.
MARTY WOLF is president of Martin Wolf Associates, a San Ramon, Calif.-based investment banking firm. MWA is a leading provider of professional merger and acquisition advisory services, and information and events for midmarket technology products and services companies. Its next M & A Forum is Feb. 24-26 in Washington, D.C. He can be reached via E-mail at mwolf@mwainc.com.
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