RE: On-Line Sales from San Jose Mercury News
San Jose, Calif.-Area Technology Firms Lag in Online Selling
Feb. 24 (San Jose Mercury News/KRTBN)--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."
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-fulfilment 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.
Must be usiing an airplane accountig (out of the clear blue sky comes a debit...) to get to those numbers.
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."
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."
By Monua Janah
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(c) 1999, San Jose (Calif.) Mercury News. Distributed by Knight
Ridder/Tribune Business News. COMS, SUNW, HWP, CPQ, CSCO, DELL, DTE,
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