Warning..Warning-->Hybrid Hazard Ahead,CPQ/HP admits pitfalls.
Steven:
Get a load of this,a bit dated but true still.
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Hybrid PC sales: Hazards ahead
By Lisa DiCarlo, PC Week Online
November 20, 1998 5:11 PM ET
LAS VEGAS -- Driven by the success of Dell Computer Corp. (DELL), Compaq Computer Corp. (CPQ) and Hewlett-Packard Co. (HWP) are creating hybrid direct/indirect-sales models that are laced with pitfalls -- including potentially higher PC prices.
At Comdex here this week, executives from Compaq acknowledged the drawbacks of the company's recently enhanced DirectPlus program. The plan, through which Compaq will sell PCs, notebooks and servers directly to small and medium-size businesses, has the potential to result in higher prices, creating a greater threat of inventory problems and a consolidation of resellers.
In addition, while the new DirectPlus enables small businesses to buy PCs over the Web, it will offer no discounts for volume purchases.
Compaq will placate resellers by offering them a set "commission" percentage paid by Compaq for each sale.
"We didn't really want to go direct [to small and medium-size businesses], but this is the way the world is moving," said Bob Fernander, vice president of PC products for small and medium business at Compaq, in Houston.
To be sure, selling direct has many advantages for customers. Vendors are typically more accountable for their products and customer relationships and are able to offer a wider variety of products.
The downside, ironically, can be higher prices.
Through Compaq's traditional indirect model, the price of a desktop, for example, includes the price of services such as custom software loads or special drivers for unique peripherals. That same desktop without the services could cost as much as $400 less elsewhere.
"By unbundling services, the net price will probably be higher," Fernander said.
Nevertheless, a combination of direct and indirect sales is the only way to satisfy all customers, according to Eckhard Pfeiffer, Compaq's president and CEO. "The best model is customer choice" between direct and indirect distribution, Pfeiffer said during his keynote speech here.
But Michael Dell, CEO of the Round Rock, Texas, direct marketer, said this week the hybrid model lacks focus. "We are focused only on one thing from top to bottom," he said. "Compaq is talking about selling only some products directly to some customers."
For its part, HP has expanded its online electronic commerce initiative with a new service for its top accounts, called ESN (Enterprise Solutions Network).
Like Compaq's strategy, ESN is a hybrid model that mixes indirect and direct methods in an effort to placate channel partners.
With ESN, HP enables channel partners to build customized Web sites -- a la Dell's Premier Pages -- for each customer. From these sites, which are policy-based and password-protected, large corporations are able to procure a wide range of products and services.
The purchases go directly through HP's existing large-corporate-accounts sales team and are fulfilled through resellers.
ESN joins HP's growing e-commerce initiative, which also includes the consumer-oriented HP Shopping Village and enterprise corporate site, Commerce Center. Commerce Center, which was turned on in April, allows customers to browse products, among other things. They're then provided with a list of authorized resellers.
A critical byproduct of direct distribution is the need to adjust and manage inventories to handle just-in-time component delivery.
"It's a huge execution issue," said Jacques Clay, vice president and general manager of the Extended Desktop Business division in HP's Personal Systems Group, in Santa Clara, Calif. "Will we, and the [component] suppliers, be flexible enough to manage whichever way it goes? It's unknowable."
(Additional reporting by Michael R. Zimmerman)
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