This is a fuller and more positive report on the internet retailers issue. Note that COMPAQ expects to finalise the issue within 30 days. Note that it does not impact - except perhaps positively - on the $1 million per day sales from COMPAQ's own online, which contribute 10% of the sales of Presarios.
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Compaq halts consumer e-commerce sales
By Jim Davis
Staff Writer, CNET News.com
February 23, 1999, 12:05 a.m. PT
URL: news.com
Ppdate Compaq Computer suspended agreements with as many as ten companies that only sell Compaq's Presario computers over the Internet, as it works to manage emerging conflicts with traditional retailers.
Compaq said the companies, including Buy.com, Cyberian Outpost, Value America, CompuCom Systems, PCSave, and even Compaq's own Shopping.com, are effectively restrained from selling the line of consumer computers.
The move is aimed only at companies that only sell over the Internet, according to company executives. Although these resellers typically buy their systems from a distributor such as Ingram Micro, just as "brick and mortar" stores do, they can sell the systems for less than their counterparts because their operating costs tend to be lower.
Compaq's decision comes on the heels of the formation of a new business unit that is focused on selling PCs and services over the Web, highlighting the challenges that face that face Compaq, Hewlett-Packard, IBM and Apple Computer as they try to mimic the success of direct-only PC vendors Dell Computer and Gateway.
Interestingly enough, Compaq itself is dependent on at least one online reseller for its own direct sales efforts. The company outsources much of its own direct sales effort to a subsidiary of Insight, a large online reseller specializing in coporate sales, according to sources. The Insight subsidiary handles the customer sales call for Compaq as well as delivering third-party products on behalf of Compaq.
Leslie Adams, Compaq's U.S. director of consumer marketing, said Compaq took the action in response to the growing number of online retailers seeking authorization to sell only its PCs. Traditional retailers who are opening online outlets have also been seeking to sell over the Internet in greater numbers, further adding to the urgency of the situation for Compaq.
Just recently, Compaq said that it is selling approximately $1 million a day in Presario systems from its Web site. Internet-only retailers are potentially draining away sales that would otherwise go directly to Compaq's online store because it is relatively easy to find lower prices on the Internet through the use of specialized search engines.
But while the move may seem a straightforward attempt to grab a larger portion of online consumer sales for itself, Compaq has in fact been in the process of streamlining its sales channels for over a year. In 1998, the company changed the requirements for dealers seeking to carry its corporate computers. The new standards, which required that dealers hire more technicians trained on Compaq products, reduced the number of authorized Compaq resellers.
Adams said sales to the group of Internet retailers represent a insignificant part of its overall business. "They weren't even on our radar until recently," she claimed.
The conflict Compaq has faced is increasing its own direct sales efforts without angering its dealers. Many of its corporate dealers now participate in an agent program. Under this program, dealers who refer customers to the Compaq site receive a commission on sales.
In any event, direct sales in any event have been climbing. Daily sales of $1 million in Presario products comes to around 10 percent of overall Presario sales, said a source close to Compaq. In addition, Compaq sells over $1 million a day in Prosignia computers, designed for small and medium-sized business.
"I don't think [the action is] related to issues about margins or wholesale prices [of PCs]," a Compaq spokesperson said, noting that the company thought it was an appropriate time to "reevaluate" its sales programs.
"The sales programs we have in place were designed for brick-and-mortar stores. There are issues like customer support, product demonstrations, and [sales materials] that obviously don't apply to a strictly Web-based reseller. We thought the best thing was to start over and develop a new set of programs with new requirements" for this emerging channel of distribution, the spokesperson said.
Representatives at some of the affected companies either declined to comment or were not aware of any changes. Shopping.com declined to comment because the company, only recently acquired by Compaq, doesn't have an authorized spokesperson.
News of the company's decision was first reported today by Computer Retail Week, a trade magazine covering retail PC sales.
Compaq said it expects to reach new agreements with the Internet companies within 30 days.
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