March 01, 1999, Issue: 831
Section: News
Messy Situation -- Vendors Strive To Clarify Online
Resellers' Strategy
Pedro Pereira & Scott Campbell
New York -- It's becoming a messy situation.
Even while Compaq Computer Corp. last week moved to block distributors
from supplying products to Internet resellers, IBM Corp. started seriously
evaluating this same group of new channel merchants.
Compaq's move followed the Houston-based company's earlier decision to
suspend sales of Presario PCs to its authorized Internet resellers for a 90-day
period.
Armonk, N.Y.-based IBM, for its part, said it was considering whether to
authorize Buy.com Inc. and other Internet resellers such as Cyberian Outpost
and Onsale.com. IBM likely will authorize "one or two" of the new breed of
Web resellers, said David Boucher, general manager of IBM's Advanced
Fulfillment Initiative. "We have to look at them, but it has to be a value
proposition. They can't use PCs as a loss leader or it will destroy the [IBM]
brand," he said.
Distributors, meanwhile, continued fending off E-mails and phone calls from
VARs concerned about low-priced competition from Internet resellers, many
of which use a loss-leader strategy on a handful of products they sell below
their own cost. Some VARs said distributors give online resellers preferential
pricing, which distributors deny.
"Resellers are having to address this new competition," said Terry Bazzone,
vice president and general manager of strategic business development for
Tech Data Corp., Clearwater, Fla. "As in any competitive market, the strong
will survive and adapt to market conditions. People don't always do so as
graciously as one might think, but they do adapt."
Tech Data is complying with Compaq's decision to cut off Internet resellers,
Bazzone said. "It's consistent with what systems manufacturers have done in
the past. I guess I'm surprised that as many people are surprised at their
action," she said.
But that gives little comfort to Internet resellers frustrated by Compaq's
decision. "They haven't put a program in place for Internet resellers," said
Darryl Peck, chief executive and founder of Cyberian Outpost, Kent, Conn.
"Compaq should have resolved some of these issues earlier."
By midweek Buy.com had stopped selling Compaq products but continued
selling a broad range of Hewlett-Packard Co. and IBM products, including
servers and workstations.
Greg Hawkins, longtime Ingram Micro Inc. executive who takes over today
as Buy.com's chief executive, said, "This will be a short-term thing as Compaq
rationalizes its strategy."
But a Compaq spokeswoman said Buy.com was not an authorized Compaq
reseller and that Compaq did not want to play in a low-cost, loss-leader
game.
Selling at or below cost has been a common practice for as long as the PC
channel has existed, said distribution executives.
Publicity about the Web and Wall Street's infatuation with the stocks of
Internet companies, such as bookseller Amazon.com and Buy.com, have
contributed enormously to the online controversy, said channel executives. Jeff
Rodek, president and worldwide chief operating officer of Ingram Micro,
Santa Ana, Calif., said Internet resellers get a lot of attention because of their
sky-high market capitalizations that favor revenue over profitability. "To what
degree does that damage the rest of the business?" he said. "We certainly
share the same questions and concerns as the resellers."
The unrest over the Internet resellers has to do with change, said Steve
Horwitz, vice president of services at Tech Data. "The model's changing, and
any time change takes place, people get concerned," he said.
Other instances of change that raised the channel's ire, he said, include the
initial steps by Compaq and IBM to sell some products directly to end users
and the emergence of catalog-based resellers.
The Internet reseller storm will calm down when the next major channel
concern arises, Horwitz said. Until then, distributors are likely to continue to
fend off VAR complaints and sign more contracts to serve as the backroom
for Web resellers.
CRAIG ZARLEY & JERRY ROSA contributed to this story.
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