To: Mark Carson who wrote (325 ) 12/8/1997 10:14:00 AM From: Will Cunningham Read Replies (1) | Respond to
Mark, by 'internal bleeding' do you mean that new accounts Vanstar takes that boost revenue significantly are at very low (and possibly break-even or long-term unprofitable) margin points compared to their competitors bids? I don't have any knowledge or access to information that would prove/disprove this, but if this is truly the case today then I would think it is short-term supportive and long-term negative for their business. Remember that article a couple months back that talked about the problems that IBM and EDS were having due to getting new business at any cost? It was a deliberate strategy by Gerstner of IBM at the time to bolster the services side of IBM to bring them back to their former glory. I think that since IBM started taking on big revenue, low margin service business in '93-94, they managed it well enough to not let it continue for too long and some of these 'foot in the door' projects are now fazing out and newer higher margin business has been added since '95. With EDS, they had so many problems and were disorganized and they are still working through issues due to taking on too many low-margin projects from years past when they were probably trying to compete with the better managed IBM. I see where your concern about Vanstar trying to gain market share by taking on long-term unprofitable or break-even business could lead to problems that will appear eventually. I think what we might be seeing in their industry is that there is intense competition from all sides and not just channel companies. The low end of services where Vanstar usually competes for contracts is being challenged by Wang, GTE, Ikon, Digital, and then Compucom, Microage, and Inacom. I remember reading an article where a Digital representative said that Inacom was chosen over them because they were able to make an offer that Digital would have found unprofitable for their business. I wonder if the enevitable consolidation over the next few years will see Vanstar swallowed up by Digital, Wang, or some other company focusing on services. I don't think a merger between channel companies would make as much sense.
