March 01, 1999, Issue: 831
Section: Opinion/Editorial
Online Sellers In Trouble?
Robert Faletra
Everybody is quacking about the onslaught of the online reseller channel. I
can't even count the number of E-mails I've received
over the past several months about Onsale.com, Buy.com,
ValueAmerica.com and others.
The rub, of course, has been that many of the computer products this new
class of reseller is selling are priced lower than most VARs can buy them for
through distribution-in some cases, the same distributors these online resellers
use.
My reaction early on was twofold.
First, you can't stop evolution, and second, the Internet was bound to spawn
online-only resellers. If those resellers believe they can make a business of
selling product below cost and make their profit on shipping and advertising,
there is little that can be done.
The only real viable option for VARs is to figure out how to take advantage of
this trend-and buying from these online folks until they go out of business is
certainly a prudent option.
Despite ridiculous valuations on Wall Street right now for Internet stocks, I
have never much believed in business models based on the premise of losing
money. It is no surprise then that we are already seeing signs of problems at
some online-only resellers.
CRN's own ShadowRam recently talked with a few folks who had attempted
to buy product from Buy.com. These people said the price was too good to
be true. And it was. Despite the product being in stock when they ordered it,
they were told a few days later that it was out of stock.
In some cases their credit cards were charged, requiring several phone calls to
have the bills removed.
More recently, Compaq decided to pull back from these online resellers and
re-evaluate whether it will allow them to sell its products. In addition, Compaq
has told its distributors not to sell to them either.
Now that's enough to ruin their day even if Compaq later decides to play in
this emerging channel. I think it will use them but with some restrictions.
The reality is this: The online reseller is here to stay. The business model of
today cannot be sustained over the long term. It has to change, and Compaq
may just be the catalyst that forces it to happen more quickly.
In either case, those online resellers that don't change their model to one that
results in a profit being made from selling the product are going out of
business. The Internet world moves faster than anything we have seen in the
past, and my bet is they will be going out of business quicker than any of us
can imagine if they don't change.
But don't expect this category of resellers to disappear altogether. That won't
happen. There are going to be some smart managers in this area that will make
this thing work. Changes are coming here fast. Much of the concern on the
part of traditional resellers will disappear very soon.
ROBERT FALETRA can be reached via telephone at (516) 733-8612;
Internet: rfaletra@cmp.com; or MCI: 585-5795.
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