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Watch out, Michael Dell. Christy Jones is out to
change the way personal computers are sold.
That's $70 billion and counting.
The new face of artificial
intelligence
By Daniel Lyons
IT'S 100 DEGREES AT NIGHT in downtown
Austin, Tex., but 29-year-old Christina Jones
doesn't mind the heat. She's throwing a bash for
her 190 employees at a joint called the
Speakeasy in an evening full of swing music.
They're celebrating a deal reported to be worth
$30 million or so that pcOrder.com, Inc. just
closed with Ingram Micro Inc., the world's
largest computer distributor.
Across town, Michael Dell is not trembling in his
shoes, but he is certainly noticing. Jones is trying
to revolutionize the way personal computers are
sold over the Internet, and undo the
extraordinary advantage Dell Computer Corp.
gains by selling direct to the customer. When you
buy from Dell, you pick up the phone or go to
the Web site, order what you want, sit back and
wait a week or so for the boxes to arrive.
Compaq Computer Corp., IBM and
Hewlett-Packard Co. have lost ground to Dell
because they're saddled with the traditional way
of moving merchandise through distributors and
dealers. Inserting a middleman increases costs
and often leads to unbalanced inventories.
PC makers are not about to drop their
distributors and resellers: They still move most of
the goods. But pcOrder has found a valuable
role to fill—making the distribution channel more
efficient.
Its technology lets corporate customers go to the
Web and choose the features they want—from
the speed of a microchip to the hard-disk
space—with just a few clicks of the mouse. PC
dealers, using Jones' database, can instantly scan
600,000 different parts from 1,000
manufacturers and find out what's in stock and at
what price. They then electronically pass the
order on to the distributor, which forwards it to
the PC maker.
This doesn't cut out the middleman, but it makes
him more efficient. Computer manufacturers can
also use pcOrder's software to set up their own
Web sites and take orders directly from
customers—as Dell does.
PcOrder's software is a practical outgrowth of
artificial intelligence (AI) that allows its software
to "recognize" which of the thousands of
computer parts will work together best. Jones
herself is part of a new generation of hustling
entrepreneurs who are finally making good on
the pie-in-the-sky promises of AI (see "Artificial
intelligence gets real"). Instead of trying to solve
the mysteries of the human mind, she and her
peers—many of them protégés of Stanford
University professor and AI pioneer Edward
Feigenbaum—are searching for practical
answers to specific problems.
Compaq, HP and IBM sold nearly $70 billion
worth of PCs, servers and laptops in 1997,
almost all of it through distributors and dealers.
But they are hobbled in competing with Dell,
which keeps gaining ground on them, because
Dell has a faster, cheaper and more efficient
distribution system, dealing directly with
customers and using electronic commerce.
The stakes are enormous. The market for
business-to-business electronic commerce,
including but not exclusive to computers, will
grow from $8 billion in 1997 to $327 billion in
2002, according to Forrester Research.
Jones got the idea for pcOrder in 1994. She had
cofounded Austin-based Trilogy Software, Inc.
in 1989, now an estimated $100 million-plus
company, with fellow Stanford student Joseph
Liemandt and three other young partners
(FORBES, June 3, 1996). Trilogy was producing
software for businesses that build products with
lots of parts and lots of different ways of
configuring them—Unix workstations for
Hewlett-Packard, 777s for the Boeing Co.
Jones figured the technology would work just as
well for slapping together PC systems. So she
sold back all her shares in Trilogy to Liemandt in
exchange for access to his technology and some
financial support for her new company.
Compaq, HP and IBM have licensed pcOrder
software. So have the three largest U.S. PC
distributors, Ingram Micro, Tech Data Corp. and
Pinacor, Inc. Last year pcOrder lost $1.1 million
on revenues of $10.6 million; this year revenues
should double while the losses continue. But
never mind. "The grand vision is to have every
single computer bought using pcOrder
technology," Jones says.
That's going to be next to impossible because
some companies just won't jump on board. But
even if she gets most big players, she'll be able to
gather data about buying habits and trends—and
use the information to forecast demand. Stuff
worth a gold mine to PC makers and distributors.
"We could become the A.C. Nielsen of the
computer industry," says Ross Cooley, the
57-year-old computer industry dealmaker whom
Jones hired away from Compaq two years ago
as chairman and chief executive of pcOrder.
Jones' original business plan was to build her
own Web site and act as a sales agent for
computermakers, taking a commission for each
sale. Distributors were horrified; they saw
pcOrder as a competitor. When the distributors
yell, the PC makers pay attention.
While pitching the idea to Compaq, Jones ran
into Cooley, who was then running Compaq's
North American operations. "I just sat there with
lightbulbs going off," Cooley recalls. "I realized
that if you just changed things a little bit, there
could be this tremendous potential for PC makers
to level the playing field and compete against the
direct guys."
Cooley persuaded Jones to change the business
plan. Instead of setting up her own electronic
storefront, pcOrder would provide storefronts
for individual manufacturers and dealers.
Jones persuaded Cooley to come on board in
exchange for a 7% stake in pcOrder. After 18
years at IBM and 14 years at Compaq,
retirement was looming for Cooley. He
welcomed the new challenge.
They make an impressive pair: he, the smooth
industry veteran who can charm open the doors
of boardrooms; she, the demure-seeming
entrepreneur with cover-girl looks who packs an
intellectual wallop.
One of their first joint sales calls, Cooley recalls,
was to the chief executive of a leading computer
manufacturer with sales in the tens of billions.
The exec liked the software, but he didn't want
to buy a license—he wanted to acquire the
whole company. How much—he figured—could
it take to buy a software company with sales of a
few million and no earnings?
When Jones politely said the company wasn't for
sale, the chief executive leaned back in his chair
and explained to young Miss Jones that
everything in the whole wide world was for sale
at the right price. In that case, said Jones, she
would accept $1 billion. The exec looked Jones
in the eye. Jones stared right back.
She wasn't bluffing. "You know," the chief said at
last, "you are very effective."
She has to be. Despite its momentum, pcOrder
is hardly a guaranteed winner. While the major
PC-makers and distributors are on board, only
about 5,500 salespeople actually use the
software; approximately 45,000 remain to be
convinced that ordering PCs over the Web beats
doing business over the phones and faxes.
It's a hard sell. PcOrder recently spent several
hundred thousand dollars on a direct-mail
marketing campaign that flopped. "We spent four
times more per lead than the cost of the software
itself," Jones complains.
Okay, back to the drawing board. Now
pcOrder is hiring an army of young sales reps,
most fresh from college, to call on dealers
directly. They're led by Scott Kamieneski, 37, a
former top salesman at SAP America, Inc. who
recently joined pcOrder as vice president of
sales.
The software also needs a little tinkering. In a
recent marketing meeting pcOrder staffers
covered the walls with Post-it Notes describing
the results of a customer survey. The software is
too slow, users complained. And it doesn't let
them send quotes via E-mail. Some pcOrder
customers still prefer printed catalogs from PC
makers. Perhaps with good reason, since
pcOrder has had trouble with data reliability.
Jones insists that problem has been fixed.
PcOrder has filed to go public sometime late this
year or in early 1999, hoping to raise $35
million. News of that big deal with Ingram Micro
will help move the issue.
PcOrder has one giant thing going for it: Unless
Dell's competitors can make their distribution
more efficient, there will be no stopping the
juggernaut from Austin. "Every time the quarterly
numbers come out and Dell outperforms
everybody else, the urgency goes up another
notch," says Jones. |
