Has IBM found a better way than WaveMeter?
Folks, the thesis here has been that IBM and other box makers will use Wave chip to get a slice of software sales. A lot of people here have been waiting patiently (too patiently) for signs from IBM that it is going forward for WAVE.
Well, there is always more than one way to skin a cat. Chumbo.com now works with IBM to sell software over the Internet to new Aptiva users. The new Aptiva comes with the Windows DOS, a browser and not much else. But you get a credit to buy and install new software over the Internet via Chumbo.com website. IBM gets a slice of the software sales. Wasn't this WAVX's plan?
Check it out:
Why Chumbo.com Is Likely to Be a Name
You'll Remember
By Herb Greenberg
Senior Columnist
1/11/99 6:30 AM ET
From the "remember where you read it first, folks" department:
Several years ago this column wrote about Rambus
(RMBS:Nasdaq) while it was still private, noting that it would be a
company to watch.
Along those lines: You've never heard of Chumbo.com, but
there's a good chance you will.
Chumbo, at first glance, is just another Web site that sells
software to the public at low prices. Big yawn. So do
Beyond.com (BYND:Nasdaq), Egghead.com (EGGS:Nasdaq)
and a growing list of other dot-coms. An even bigger yawn in this
"am I too late to get in" kinda market, Chumbo is private. But late
last week Chumbo struck a deal with IBM (IBM:NYSE) that may
be the first of a series of deals with other PC makers. The deal
shows not only how different Chumbo really is, but also why
some analysts believe it could leap past the others the way
eBay (EBAY:Nasdaq) zoomed past Onsale (ONSL:Nasdaq) and
Amazon (AMZN:Nasdaq) bamboozled Barnes & Noble
(BKS:NYSE).
Before getting to the IBM deal, though, a little history:
Minneapolis-based Chumbo was co-founded several years ago
by David Prais, one of the original European marketing managers
for Dell (DELL:Nasdaq) and, until starting Chumbo, marketing
chief for Gateway (GTW:NYSE). His co-founder was Tim Burton,
who ran the Point Group, which licensed and resold software to
PC makers.
Point Group was then merged into Chumbo, but the story took a
new twist last October when Chumbo sold a 30% stake for $5
million to Zomax Optical Media (ZOMX:Nasdaq), which is
based in nearby Plymouth, Minn., and which makes CDs and
DVDs, and licenses and resells software to PC makers. The idea
was to merge PC industry contacts of Zomax and Point Group
and Zomax's manufacturing and warehousing capabilities with
Chumbo's Web site and proprietary e-commerce software. The
following month Chumbo was named the best Internet software
site by PC Magazine, which helped raise its visibility with
software buyers, but kept it below most other radar screens.
And Zomax itself was damaged goods on Wall Street after
turning in a lousy quarter last October.
Enter the IBM deal. Instead of overloading its PCs with costly
software that many PC users won't or don't use, IBM decided to
stock all new Aptivas only with Windows, a browser and several
other basic software titles. As part of the registration process for
the new computer, users will be directed to a Web site
co-operated by Chumbo and IBM, where they'll be able to buy
other titles. The first two will cost $10, and IBM and Chumbo will
share in the profits. "We're doing for the software industry what
Dell and Gateway did to the hardware industry," says Prais,
Chumbo's president.
There's chatter that he's talking about similar deals with
Gateway, Dell and other PC makers that are looking for new
ways to cut unit costs (those useless software titles add to the
cost of the PC!) while creating a new stream of revenue via the
aftermarket sale of software. Prais will only say that Chumbo,
which has OEM relationships with seven of the top 10 PC
makers, already operates a joint Web site with Apple
(AAPL:Nasdaq) in the U.K. and is "in discussions with other
people."
The more deals the better for a company like Chumbo, which
unlike most Internet retailers has spent virtually nothing to get
customers. "Amazon has tied up [Internet] real estate, but it has
spent a fortune," says hedge fund manager Bob Holmes of
Gilford Partners in Chicago, who prefers to short stocks but
ranks Zomax as his favorite long position. "Chumbo, it would
appear, is starting to grab real estate -- now they have IBM, and
they didn't have to pay anything for it."
As a result, Holmes believes Chumbo has just started to turn a
profit on revenues that analyst Clint Morrison of John G.
Kinnard in Minneapolis believes are annualizing at roughly $10
million. Zomax, meanwhile, just completed an acquisition of Kao
Infosystems, a large maker of CDs and DVDs. The purchase will
triple Zomax's size. Holmes sees Zomax "on one hand as a real
company with earnings and sales, and on the other you have a
free call on what some people say is the best software site.
You're basically getting it for nothing."
The kicker: Zomax earned $3.5 million last year and currently
has a market value of $133 million, while Egghead lost $58
million and has a market value of $540 million and Beyond.com
lost $17.6 million and has a market value of $868 million.
The obvious question is whether Chumbo will capitalize on the
latest round of Internet insanity by going public sometime soon.
"Clearly there have been discussions internally," says Jim
Anderson, CEO of both Zomax and Chumbo. "We would be
foolish not to be considering it based on the dynamics for
anything with dot-com behind it."
Doubly foolish considering Zomax's measly $5 million original
investment.
Herb Greenberg writes daily for TheStreet.com. In keeping with
the editorial policy of TSC, he does not own or short individual
stocks. He also does not invest in hedge funds or any other
private investment partnerships. Greenberg writes a monthly
column for Fortune and provides daily commentary for CNBC.
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