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Technology Stocks : OnSale Inc. -- Ignore unavailable to you. Want to Upgrade?

To: tom pope who wrote (3724)	2/21/1999 6:46:00 PM
From: B. A. Marlow	Read Replies (2) \| Respond to of 4903

No surprise, tom. If you study the computer distribution industry, you see this sort of thing all the time. Interestingly and ironically, atCost does not particularly mean "too-good-to-be-true wholesale." It means "price quoted is based on Column 1 on Tech Data's price schedule." And it does not even mean that this is the price Tech Data actually charges to Onsale. Onsale might be charged the Column 5 price, or might be picking up cumulative volume rebates or manufacturer's sales incentives (SPIFs), co-op ad funds, market development money, etc. Onsale isn't misrepresenting anything, but it's not failing to exploit its negotiating clout, either. Now, there are often anomalies as well. Many times, Tech Data's (or Ingram's or Merisel's or Synnex's, etc.) reseller price is not competitive with some CompUSA loading program direct from, or subsidized by, the manufacturer, or with a cataloguer's inventory blow-out. In addition, as you point out, Onsale is adding on a bunch of transaction charges. As we all know, freight is a profit center for many firms, Onsale included. So when you add it all up, there is absolutely no assurance that Onsale will represent the lowest price for any particular item at any particular time. But contrary to some naive Wall Street commentary, there is no risk that Onsale's model is inherently flaky or unprofitable. From a customer standpoint, the usual "Caveat Emptor" applies. And from an investor standpoint, we'll have to see whether Onsale can navigate these waters. It will quickly learn what it takes to make the atCost model work. Personally, I see it exclusively as a marketing issue vs. a pricing issue. Low-ball pricing doesn't fool anyone. You get what you pay for. Tell you what, I'll sell you Excel 97 for $47, overnight freight included. Aw, too bad; I'm out of stock! But how about a nice "ergonomic desk chair" for $299 (on which my gross margin is 50 percent)?! So, Onsale has to pay attention to, and manage, the customer experience. In the end, that's the only business it's in. (Just ask AMZN, who will never be the low-price leader. Or Harry & David: incomparable customer service and the best $3.00 pear I ever ate!) And that's why your and Jim J.'s comments matter. BAM