I found this at www.mercurycenter.com and assume it is the same story. Nice backgrounder but nothing new to most of us here -- should add to what I perceive as a generally optimistic mood though!
Posted at 3:17 p.m. PDT Monday, June 21, 1999
PC maker shakes up the computer industry with direct sales
NEW YORK (AP) -- Shell Oil Co. used to shop around for its desktop computers. Then Dell Computer Corp. offered a tailor-made Web site for Shell employees to conveniently order PCs, attractively priced and customized to their needs.
Two years later, Shell has bought $50 million worth of Dell machines and isn't looking back.
It's hardly alone. Dell's strategy of selling computers directly to users -- eliminating wholesalers and retailers -- has lured legions of loyal customers, fueled powerful profits and prompted its largest competitors to become copycats.
Dell's model of sales efficiency, in short, is helping to trigger an historic industry effort to cut out the middleman.
Dell, the No. 2 seller of PCs behind Compaq Computer Corp., says it sells about $18 million a day in computers over the Internet. That's a stunning $6.4 billion a year, about 30 percent of its total sales.
The company, which still sells most of its computers through its 1,200 salespeople, recognized early on that tech-savvy buyers often know what they want -- and prefer not to haggle with distributors. Cutting out the middleman, moreover, often means a better price.
Trying to blunt the Dell threat, archrivals IBM, Compaq, and Hewlett-Packard Corp. are trying to emulate the more efficient model, but they're moving tentatively for fear of alienating the wholesalers and retailers that have helped made them among the world's top computer makers.
This go-it-slow strategy has its costs. Compaq warned last week it will report a big loss this quarter and lay off thousands of employees as a result of sluggish sales and price wars, woes that already led it to oust its chief executive in April. Hewlett-Packard and IBM also are smarting, though less than Compaq, analysts say.
Compaq's days as the PC sales leader may be numbered. Last quarter, its share of U.S. PC sales slipped 2.1 percentage points to 15.7 percent, compared with a year earlier, reports researcher Dataquest Corp. Dell's market share rose 2.9 points to 14.3 percent. Hewlett-Packard, IBM and Gateway, which sells home PCs directly to consumers, posted smaller increases.
''Dell's use of the Internet is really years ahead of where Compaq, HP and IBM are right now,'' said Matt Sargent, an analyst with the ZD InfoBeads research firm.
In just two years, Dell has developed 22,000 customized ''Premier Pages,'' Web links that allow businesses to conveniently order computers directly from the company.
Dell builds machines as customers order them so it doesn't have to stockpile inventory. The company buys parts like disk drives and memory chips as they are needed, which saves money since component prices have consistently dropped.Dell often splits the savings with its customers.
While customers who prefer dealing with a Dell salesperson can still do so, they can save more money by ordering through the Web. In many instances, those orders go directly to Dell's factories in Austin, Texas, resulting in deliveries in just days.
''Some of our larger customers have gone completely paperless,'' said Joe Marengi, Dell's senior vice president of corporate sales. In addition, ''the orders that come through in this fashion are much more accurate than the orders that come in via fax.''
In contrast, Hewlett-Packard has created only 800 specialized Web sites for its business customers. This month it unveiled a strategy to broaden direct sales.
IBM plans this year to set up 350 Web sites to sell business machines, and aims to have 1,000 within two years.
The companies hope to gradually shift more sales directly to customers, while preserving a chunk for traditional distributors.
But walking the fine line can be treacherous. Analysts say Compaq's effort to increase sales directly to customers has led some dealers, who are annoyed at being circumvented, to refer buyers to other PC makers.
The behind-the-scenes battle for customers may not be readily apparent to many users of home PCs, most of whom still buy computers the old-fashioned way -- at big retail chains like CompUSA and Circuit City.
To be sure, the kick-the-tire crowd will be out in force this week at the PC Expo trade show that opens here on Tuesday. But some observers say the surge of interest in selling computers over the Internet may eventually make shows like PC Expo irrelevant because sophisticated buyers increasingly make their purchases without seeing or touching the machines.
JimW |
