Compaq reshapes channel landscape
May. 07, 1999 (Computer Reseller News - CMP via COMTEX) -- Houston -- Compaq Computer Corp. is
dramatically and abruptly changing the distribution landscape by slashing the number of its North American
channel partners buying directly from the vendor to four from 39.
Compaq outlined the sweeping distribution plan, dubbed Distributor Alliance Program, in a meeting with CRN
editors and channel executives in Houston last week. The Alliance taps Ingram Micro Inc., Santa Ana, Calif.;
Inacom Corp., Omaha, Neb.; Merisel Inc., El Segundo, Calif.; and Tech Data Corp., Clearwater, Fla., as the
only four North American channel organizations that can buy Compaq Wintel commercial products directly
from the vendor and distribute them to VARs, corporate resellers and direct response and retail
organizations.
Executives from each of the four Alliance partners attended the Houston meeting, as did Ed Anderson,
president and chief executive of CompuCom Systems Inc., Dallas. Although not part of the Alliance,
CompuCom, as a co-located Compaq integrator, will continue to provide integration and configuration
services for the bulk of Compaq's direct large-account business.
The Alliance, which is expected to be fully implemented by Aug. 1, will consolidate Compaq's direct channel
relationships down from 18 corporate resellers, 12 distributors and nine direct response/retailers, said Mike
Pocock, Compaq's vice president of U.S. channel sales. Moreover, Compaq will not expand the Alliance
distributors beyond the initial four, Pocock said.
However, Pocock emphasized that "no one will be deauthorized." Channel partners currently buying directly
from Compaq will now instead establish buying relationships with an Alliance partner. All Compaq resellers
will be able to continue their configure-to-order (CTO) relationships with Compaq, he said. Under CTO,
resellers can order product directly from Compaq and have it drop-shipped to the end-user account.
Compaq's move to pare down its direct channel relationships likely will force a scramble among the former
partners to forge new alliances, channel executives said.
"The channel players not represented in Distributor Alliance will all have to decide what their business model
will be going forward," said Doug Antone, senior vice president at Ingram Micro.
The Alliance is designed to dramatically increase distribution efficiencies and reduce costs by consolidating
the number of North American channel stocking locations to 30 from about 100, a move that should reduce
current channel inventories by 50 percent, Pocock said.
"The attractiveness of this Alliance is that it creates a significant opportunity to drive costs out of the system
and make this a very efficient distribution model," said Bill Fairfield, president and chief executive of Inacom.
Alliance partners were selected mainly based on financial stability, global coverage and the quality of their
logistical and information systems infrastructure, Pocock said. While Merisel is primarily focused on North
America, the distributor was selected in part because it is Compaq's largest Canadian distributor, he said.
Pinacor Inc., the Tempe, Ariz., subsidiary of MicroAge Inc., was not chosen as an Alliance partner but will
continue to distribute Compaq's products, said MicroAge Chairman and Chief Executive Jeffrey McKeever.
Pinacor has configuration skills and financing services that will help it retain its VAR customers, he said,
adding that the cost disadvantage should be minor.
"The four Alliance partners are going to be bidding for Pinacor's business and each one will use price to get
that business," McKeever said. "Pinacor will have to pay more than U.S. One [Alliance pricing] but there will
be cost offsets, such as less warehouse capacity."
The four partners represent about "98.5 percent of [Compaq's North American volume], and there is little risk
of market-share loss," Pocock said.
Alliance partners also were selected because of their investments and experience in selling enterprise
products, Pocock said. Initially, the Distributor Alliance applies to only Wintel products sold in North
America but eventually will include Alpha Unix and Tandem systems and likely will expand to other
geographies, he said.
This plan is one of the first by a major vendor to actually take cost out of the distribution model, some
distribution executives said. "So far this is the boldest and most significant move to take costs out but still
keep the reseller engaged," said Tony Ibarguen, president of Tech Data. "The question has always been how
can we take the costs out to compete with the direct model yet retain the incredibly powerful force of tens of
thousands of resellers. In fact, most vendors are already looking at benefits of similar programs," he said.
Added Dwight Steffensen, Merisel chairman and chief executive: "I am the last to believe that all our
questions have been answered here today; I have been concerned about a cost shift [from the vendor to the
channel]. If this takes costs out, then [Compaq] has the right model," he said.
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