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To: Chuzzlewit who wrote (81253)	11/19/1998 12:11:00 AM
From: rudedog	Read Replies (2) \| Respond to of 176387

Chuz - you're making the same mistake that the other posters are making. The argument you propose is exactly right for the big distributors, and I believe that they will in fact get into private labeled products in a big way. But that was inevitable given the economics of the market, and I predict that they will not be able to compete effectively as giant white box makers either. No question that CPQ and the other channel vendors will take a hit from this, but the big losers are the channel partners. The question for CPQ is how do they manage the disengagement process, and CPQ's method is in part going after a completely different indirect channel which does not directly compete with the big guys. So the market that this SMB program is aimed at is not guys with warehouses and shipping bays. In several years of work that MSFT did on this market, they determined that of the more than 200,000 VARs identified, less than 1000 had more than 50 employees - .5 percent. The average number of employees was 3!!! these guys don't have docks and trucks - maybe a beat-up van and a storefront. They handle the merchandise using the armstrong cargo system. They buy parts on the spot market and sell with 5% gross margins, and make the rest up in what amounts to consulting services. The average annual revenue for these businesses is on the order of $300,000, $200,000 of which is hardware passthrough at 5% GM. Hard business. They also currently give up a big chunk of that precious GM to carry inventory, small as it is. The idea of having a big partner like CPQ take away the whole burden of financing hardware sales is very compelling. Think about a sale of 5 workstations and a small server for an outfit with the revenues I described. Even if they get 30% on order and manage everything perfectly, they will have a painful scramble to keep from getting killed. Every time. No relief. I could go into more detail on the model as it was presented to the VARs - but first you have to understand what these guys are like. It's hardscrabble farming in the technology world. In the mean time, CPQ has to be careful to preserve just enough value with the big guys with joint marketing programs, channel bundles and all the wonderful stuff that has kept the old bus on the road all these years to manage the decline. And of course be ready to play fierce hardball as well. There will be a different set of programs designed for the big channel partners. Some of them will change their operations to become more independent, but do you really see any viable strategy for a new box maker trying to compete with no brand? Come on, HP and IBM are getting killed, what chance does clones'r'us have? The rest will have to find a symbiotic relationship or go belly up. I could imagine Dr. Kevorkian getting involved as a consultant somewhere in this process...