March 01, 1999, Issue: 235
Section: News
Taking the Internet Bull by the Horns -- Compaq Suspends
Presario Sales to Web-Only Retailers
Mark Harrington
Houston - Two weeks after Compaq stunned Internet retailers by suspending
their supply of Presarios, virtual stores worked to contain the damage while
many of their brick-and-mortar counterparts applauded.
During the week of Feb. 15, Compaq informed Internet-only retailers that it
had terminated their authorizations pending a thorough review of programs
and partnerships.
A spokeswoman for Compaq said the company needed to evaluate a channel
that had grown inordinately in a short time. She said new authorization
agreements could be ready in 90 days. She would not say whether all the
de-authorized online retailers-including Buy.com, PCsave.com, Cyberian
Outpost, Shopping.com (which Compaq has agreed to buy), and
ValueAmerica-would be reinstated.
Some e-retailers affected by the decision cried foul. "It seems nonsensical to
me," said an executive at one operation. "They're throwing the baby out with
the bath water."
Others saw the move as necessary in light of loss-leader pricing strategies
announced by rivals such as Buy.com.
"It's a good thing for the industry," said a buyer for one Internet store affected
by the move. "It hurts me short term, but Compaq is a clean line and they
want to keep it that way."
Nathan Morton, former CEO of CompUSA and Computer City and current
chairman of Hand Technologies, said while he was "surprised" Compaq
deauthorized the Internet retailers, he agreed some controls were necessary.
"I think all companies are going to have to rationalize their Internet strategies,"
he said. "The Internet retailers obviously need some rules, just like traditional
retailers. You need an orderly marketplace. It needs to be managed."
"Compaq had to do it, and it would be nice if other vendors would do it, too,"
agreed Ahron Schachter, vice president and general manager of DataVision,
New York. "I think it's very good for us."
Michael Perlman, president of BrandsMart USA, said Internet retailers
operating at a loss can't be sustained, and applauded Compaq's move.
Jim Halpin, CompUSA president and CEO, said aggressive pricing by
Internet retailers brought the issue to a head. "When people take the PalmPilot
and sell it for $50 below cost, it can't make a lot of people happy," he said.
He added each manufacturer must look at the issues and "make their own
decision" about future Internet business.
While many of the Internet retailers professed to understand Compaq's
motives, the move caught almost all involved off guard-some painfully so.
PCsave.com, a division of corporate reseller CompuCom Systems,
committed to an 8 million-piece direct-mail campaign touting PCsave's
selection of Presario PCs, said PCsave.com president and CEO Philip Wise.
"We're going to look bad, and Compaq's going to look bad if we say we have
Presarios for sale and they're not available," Wise said. "We are surprised at
Compaq's abrupt announcement, especially considering we have advertising
that can't be changed."
One affected e-tailer said he's confident business with Compaq will resume
shortly. In the meantime, he said he'll sell the Compaq products he has in
stock.
"We're extremely confident we'll be reauthorized in a few weeks," said Darryl
Peck, president and CEO, Cyberian Outpost. "But we need to take care of
our customers while they do that. We'll continue to sell the Compaq inventory
we have in house and have other ways of getting it."
PCsave.com's Wise said given his Presario predicament, he hopes Compaq
expedites its review. "Compaq is saying it's a study, and I hope it's a quick
study," he added.
-Aaron Ricadela and Paula Rooney contributed to this report.
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