Excerpts from WSJ piece on onsale.com and buy.com
(Included for those without subscriptions)
Entire article at interactive.wsj.com
January 19, 1999
Tech Center
Web Seller Asks: How Low Can
Personal-Computer Prices Go?
By GEORGE ANDERS
Staff Reporter of THE WALL STREET JOURNAL
Tuesday, Onsale Inc., Menlo Park, Calif., is said it would start selling new personal computers and accessories to the public -- at the same wholesale price it pays for them. Onsale says it is gambling that revenue from advertising on its Web site (www.onsale.com1), fees for service contracts and leases, plus a nominal handling fee per order, will leave it with a small operating margin. The company says it doesn't expect to make a profit from marking up prices to consumers.
Meanwhile, aggressive distributors such as Ingram Micro Inc. have bought minority stakes in online merchants and are helping them sell directly to the public. In Ingram's case, its online ally, Buy.com Inc., also is sidestepping traditional retailers and other resellers to reach the consumer directly, at prices that are sometimes above cost and sometimes below.
'Inherently More Efficient'
Onsale's initiative, though, may be the nerviest attempt yet to rewrite the rules of PC selling. "We're not going to put stores out of business," says Jerry Kaplan, Onsale's president and chief executive officer. "But we think the Internet creates a new form of retailing that is inherently more efficient. We want to take that to its logical extreme."
To get merchandise, Onsale has signed a one-year supply agreement with Tech Data Corp., a Clearwater, Fla., PC distributor with about $12 billion in revenue. Onsale will take orders on its Web site and arrange billing by credit card. Tech Data will ship goods from warehouses in at least four states. Consumers will pay Onsale's wholesale cost as well as standard shipping charges, a 2.6% credit-card processing fee and a nominal handling charge to cover certain operating expenses -- say, $5 to $10 per order.
For traditional resellers who buy from distributors and mark up prices without offering much in the way of special service, Onsale's willingness to do business at cost "is clearly a challenge," says Anthony Ibarguen, president of Tech Data.
Mr. Ibarguen says he is bullish enough about the future of Internet commerce that he wanted to do the Onsale transaction even if it jolts some of his existing customers. Resellers who want to charge premium prices will need to offer special services, he says. Besides, he suggests, maybe his company's alliance with Onsale "will encourage others to automate their order process with the Internet."
With its Tech Data contract, Onsale plans to sell 31,000 new products at sizable discounts from the manufacturers' list prices. For example, it will offer 3Com Corp.'s Palm III hand-held computer at $269.47 and a Hewlett-Packard OfficeJet Pro 1170C color inkjet printer for $685.90. By contrast, 3Com on its Web site sells the Palm III for $369. H-P sells a slightly upgraded version of the same printer for $799.
As of Monday afternoon, Onsale's prices beat any rival offers listed on shopper.com (www.shopper.com2), a comparison price-shopping service run by Cnet Inc.
PC-industry manufacturers say they will watch Onsale's experiment with keen interest. But they aren't likely to take sides in the ensuing tussle as long as their own pricing doesn't suffer. "Our strategy is to sell wherever our customers want to buy," says Shen Li, director of consumer channels at Hewlett-Packard. "As long as they protect the H-P brand, we don't play preferences for one sales channel over another."
Pricing Below Cost
At Onsale, officials acknowledge that even with their Tech Data contract, they won't always be the vendor with the lowest price. Intensifying competition over the Internet has led some vendors, like Buy.com, to price products below cost at times in hopes of recouping losses on other orders or ad revenue.
Onsale, for example, plans to sell a 17-inch color monitor made by Sony Corp. for $331.79, while Buy.com offers the same model for $306.95. Onsale also plans to sell a top-of-the-line ThinkPad laptop computer made by International Business Machines Corp. for $4,490. The same machine was available Monday from the Web site of LA Computer Center Inc. (www.lacc.com3) for $4,415.
Onsale's Mr. Kaplan says he hopes his company's consistently low prices will attract steady customers, particularly at small businesses needing a wide range of products. If other vendors try to undercut his prices consistently, he asserts, "that won't be sustainable. No one can stake a business on negative margins."
Hyperlinks in this Article:
(1) onsale.com
(2) shopper.com
(3) lacc.com
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