Thread - Time for the news. I've posted on this company before, it's called PCorder and lured Ross Cooley from CPQ. It's forte is PC distribution software, and it's featured in the current issue of Forbes. Also, in Fortune, Herb Greenberg's column has a paragraph where he rags on the CPQ boards ragging on him for knocking the stock recently. I get the feeling he is talking about the Yahoo thread, but he does not mention any specific board. I'll post the column if it is on the Fortune site...
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.
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