Compaq-Less like Dell more like Digital Equipment.
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Very interesting I think,you?
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1999: THE YEAR OF THE HYBRID SALES MODEL?
Dec. 04, 1998 (Computer Reseller News - CMP via COMTEX) -- For the past dozen years, we have cited two key attributes of the indirect model that promised to push an increasing portion of computer-industry sales through it. The first was a lower cost of customer acquisition. The second was the inherent ability to independently provide a multivendor solution.
The secret to lowering selling costs was straightforward. Because a reseller sold across vendors, it had the potential to be inherently more efficient in the sales process. Brand was not an issue since the reseller carried most brands. Until this year, this method worked very well, as evidenced by lower selling costs and rising profitability on average for domestic computer manufacturers, following nearly a decade of shrinking margins.
The apple cart was tipped this year by Dell's success in direct selling major accounts and by the Internet's promise to more cost-effectively reach smaller accounts. Although Compaq and IBM have launched direct-sales initiatives aimed at large accounts in an effort to duplicate Dell's success, they have not duplicated Dell's low-cost structure.
We estimate that Dell sells about $8 billion per year to major U.S. accounts through a domestic field-sales force that numbers perhaps 400. This is a highly productive model and not the same as was common in the computer industry 20 years ago. For the most part, these salespeople work out of their homes and are backed up by inside or factory reps that outnumber the field by two or three to one.
Dell's field infrastructure costs are low. For example, drive through any major regional headquarters city. In Atlanta, I am within 10 minutes of the Compaq and Hewlett-Packard buildings and the IBM campus. I've never seen one for Dell because it doesn't exist. If the idea is to play the game Dell's way, it might make sense to be similarly equipped or "virtually" equipped. As we see it, Compaq's direct initiatives with major accounts look less like Dell and more like Digital Equipment's.
Along those lines, kudos to CompuCom for taking a chance on blowing up its field infrastructure and moving toward a lower-cost virtual-office concept similar to Dell's. With what should now be a cost-edge relative to other resellers and manufacturers, coupled with the ability to provide a multivendor solution, the company has a good shot at winning in this new game.
On the small and midsize business front, the game has changed since the Internet provides a tool for manufacturers to cost-effectively reach even the smallest customers. Unfortunately (or fortunately if you're a distributor), fulfillment, credit and other services that distributors provide-not the least of which is broad assortment-will keep them around for a long while.
Our prediction for 1999 is more modest declines in component prices, coupled with substantially reduced channel inventory, will narrow Dell's cost advantage and provide a bigger boost to indirect-selling PC manufacturers than their direct relationships. Moreover, the very high cost of direct sales and strained channel relationships should more tightly bind these initiatives and create hybrid-not direct-models.
(ROBERT ANASTASI is managing director of The Robinson-Humphrey Co. LLC, an investment-banking firm based in Atlanta.)
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