Tech firms slow to use direct Web sales
San Jose Mercury News - Published Wednesday, February 24, 1999
They're beginning to ramp up, but don't want to anger reseller chains
Ever try to buy a Palm hand-held organizer directly from 3Com Corp.? Its Web site is
chock full of company information, but this major technology player won't let its
customers make purchases from the site.
3Com is not alone. Many of Silicon Valley's companies that are at the heart of the
Internet -- ones that provide the equipment that makes buying and selling on the Web so
easy -- do little, if any, online selling of their own.
As a result, analysts say, companies such as Sun Microsystems Inc., Hewlett-Packard
Co., Compaq Computer Corp. and 3Com present a strange spectacle: While they are
touting products and services to help their customers build e-commerce systems, they're
leery of doing e-commerce themselves.
But this is beginning to change. Technology companies are ramping up their Web-selling
efforts, while at the same time taking care not to ruffle the feathers of their longstanding
resellers -- national and regional distributors, systems integrators and retailers.
Among major manufacturers, Cisco Systems Inc. and Dell Computer Corp. lead the
pack in online selling, having started well ahead of their competitors. Cisco, which
makes networking hardware, sold $2.1 billion of goods online in its latest fiscal quarter.
Dell generates $14 million a day from consumer and business purchases on its Web site.
These companies have traditionally relied on direct sales for the bulk of their revenue,
and haven't had to worry much about alienating resellers. On the other hand, competitors
such as HP, Compaq and 3Com, with extensive reseller networks, have been hamstrung
in their Web efforts because they don't want to compete with their distributors.
But market-research firms are predicting spectacular growth in sales of computer
equipment and peripherals via the Web. Forrester Research Inc., of Cambridge, Mass.,
sees sales of computing and electronic equipment growing from $19.7 billion in 1998
(less than half of all online sales, of $43.1 billion) to $50 billion this year and $230
billion in 2001. But the real question is how this growing pie will be divided up among
the industry's giants.
Steven Bell, an analyst at Forrester, predicts that the major computer-equipment makers
''will all break loose in 1999 '' from the constraints that so far have slowed their Web
sales.
Santa Clara-based 3Com three months ago launched an ''e-business'' initiative, with the
intent of boosting online marketing, sales and support. ''We definitely don't want to
disrupt the strength we have'' with resellers, says Eric Sternberg, vice president of
e-business of 3Com. ''However, there are customers who want to buy over the Web
and we are doing a lot of work with our strategy in that respect.''
Long way to go
But 3Com still has a long way to go before it sells its high-end switches -- which
connect data networks -- online. Currently, 3Com sells only its Palm electronic
organizers online, but through an order-fulfillment partner, Modus Media.
Palo Alto-based HP, meanwhile, has operated two online stores -- the HP Shopping
Village, where direct purchases can be made, and the Commerce Center for business
customers -- since November 1997. The Commerce Center isn't an online store per se --
it simply gives business customers an easy, point-and-click way to order from an HP
reseller. ''Currently what we offer is an elaborate and sophisticated referral service'' on
the Web, says Rebecca Green, HP's North America e-commerce manager.
Sun, in Palo Alto, has an online store called SunStore that offers everything from
peripherals to workstations and low-end to midrange servers. Its high-end servers,
however, aren't offered online because they require extensive configuration and
after-sales hand-holding by the tech-support staff.
By next year, though, Sun is planning to replace its current online ''configurator'' --
which allows potential buyers to specify settings -- with a more sophisticated tool that
will make online configuration easier.
Interestingly, Cisco's routers are among the most complex and expensive computing
equipment around. But the company's online configurator provides buyers with
easy-to-follow steps to specify settings for the routers, which are used to direct traffic on
computer networks. The tool assists potential buyers pre-configure their purchases, and
it is user friendly enough that it can point out errors.
Compaq, too is stepping up its Web efforts. Compaq chief Eckhard Pfeiffer declared last
month that the company intends to assume leadership of the Internet, and analysts expect
that Compaq will use its AltaVista company to build up a major Internet portal that will,
among other things, drive sales of Compaq gear. Compaq this week confirmed reports
that it has suspended agreements with 10 online retailers that sell its computers, citing the
need to review its approach to Web sales. Though online sales are small compared to
Dell's, they are growing: Compaq says its online sales now amount to $2 million a day.
Easier, faster
Cisco competitor Bay Networks, now a unit of Nortel Networks Inc., added an online
configurator to its Web site last July, and executives say that online ordering has become
much easier and faster as a result. Nortel's so-called Bay line of business sells its entire
line of networking gear -- routers, switches and hubs -- online, but the company won't
disclose sales data.
Unlike Cisco, Bay has gained most of its revenue from third parties like systems
integrators and resellers. So in creating an online-sales site, the company had to tread
carefully. Says Phyllis Brock, vice president of the Web business organization, ''We
absolutely wanted to keep our relationships with our partners.'' In addition to the
direct-ordering operation, the company also provides information about resellers. It also
offers various customized online services for buyers, such as purchasing histories.
No matter how much the companies soft-shoe around the issue, however, eventually,
more online sales will take a chunk out of the business of traditional intermediaries.
''The resellers that can add value will continue to justify their existence,'' says
Forrester's Bell. He points to large systems integrators, and distributors such as Ingram
Micro, which have started their own Web services. ''So will smaller operations that
provide niche services. The midsize guys, the ones that are not online, are in trouble.''
Companies such as Net Information Systems Inc. a Seattle company that resells Sun
servers, say they will survive because of the quality of support they can provide for
installing and maintaining computer systems. ''We're a very loyal Sun reseller and have
been for a long time,'' says President Mark Slosberg. ''But we've predicated our
business on not selling products. We're very much a service and project-oriented
organization.''
Niche market
Another Sun reseller has taken another tack. ''We've moved to being a manufacturer,''
says David Van Beveren, president of EIS Computers Inc. of Moorpark. ''We buy
components from Sun and we build our own systems under our own brand.'' EIS has
also focused on a particular market segment -- selling to Internet service providers, a
technically savvy group. Analysts predict that this market will thrive in the next few
years.
Companies that order computers directly from the Web say it speeds up the process.
Detroit Edison, a Detroit-based electric utility and a subsidiary of DTE Energy, has been
ordering from Dell's Web site since June 1997. Last year, the company bought $6
million in goods -- Dell desktop computers, laptops, servers, HP printers -- from the
Dell site, called Premier Page. It also uses Compaq servers and desktop machines, but
has cut back on purchasing from Compaq. ''About five years ago, it was about 50-50''
Compaq and Dell equipment, says Wayne Hastings, assistant to the vice president for
power generation. ''Now, it's more like 95 percent Dell, five percent Compaq'' even
though the price differential between Compaq and Dell products has narrowed.''
''I attribute the (shift in favor of Dell) mostly to the Dell Web site,'' says Hastings.
''We're very happy with it. It's easy to use, and they deliver built-to-order products here
in Michigan in less than two weeks. It's about as good -- frankly, a little better -- than
what our reseller was doing.''
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