Ah, January. A time for new beginnings. And with that in mind, Compaq has just come over all millennial with a special New Century resolution of its own: to wipe its haphazard, indirect slate clean and nail down that elusive ability to sell direct efficiently once and for all.
It hopes to keep that resolution intact, with last week's purchase of some of channel partner Inacom's distribution assets for $370 million cash.
With those freshly acquired order management, configuration and logistics facilities, Compaq will set up a wholly-owned company to handle its direct business. It will be headed by Mike Winkler, Compaq's Senior Vice President and Group General Manager for the Commercial Personal Computing Group.
According to him in a statement: "Purchasing these best-in-class operations immediately enhances our ability to increase customer satisfaction by providing direct accountability for even the most complex order, along with tailored configurations including hardware and software image certification, asset tagging, and the vast array of third-party peripheral products that complete the solution."
Delivering the goods
One major benefit for Compaq is that the purchase will enable customers to track the status of orders via the Internet, for all stages of the delivery process. An essential ingredient of Compaq's strategy, if it is finally to be taken seriously as a direct vendor worthy of competing with Dell.
Another benefit - perhaps inadvertent, perhaps not - is the disruption of rival IBM's co-location strategy. Compaq really threw a spanner in Big Blue's configuration works when it bought Inacom's distribution capability, because IBM had a similar agreement with Inacom.
As a matter of record, in April last year IBM named Inacom its "number one volume sales partner" for the fourth consecutive year, for its role in the vendor's Authorised Assembler Program (AAP). It gushed that Inacom's success over the years was "a clear indication of its commitment to support IBM systems."
Now Big Blue finds itself scrabbling around for either another channel assembly partner altogether, or an existing one that can take on this unexpected, extra demand. Oh, what a difference nine months make.
Terminating the relationshipIn addition to the millions of dollars worth of IBM PC business now in limbo, it is more or less a given that it will terminate the Inacom relationship as soon as is physically possible. This will be a difficult but imperative task, but safer than finding itself in the position of having Compaq as a builder of IBM machines, armed with all the sensitive inventory data and intelligence that such a partnership would provide. What a way to start the year.
Compaq accounted for around 40 per cent of Inacom's business. The other 60 per cent, of which IBM is a very large part, can, as the Americans say, go whistle. Inacom is also a distributor for Compaq's arch-rival Dell, and Hewlett-Packard, so it is likely they will have to pack their bags too.
Ironically, this is the second time Compaq's purchasing habits have adversely affected Dell, after the vendor bought Digital in 1998, which led to the termination of Dell's services agreement with Digital. Dell then forged a deal with Wang Global.
Inacom will become an IT services company and the two firms have entered into a binding, three-year services, supply and sales agreement, through which Inacom gains access to Compaq's customisation and logistics capability.
But lest we forget: Inacom has been a Compaq Channel partner for some time now. Some 15 years, in fact. As such, Inacom has been a cornerstone of Compaq's co-location strategy in the US, all along certified as its first Compaq Channel Configuration Partner. It was also one of only four tier-one distributors left on the vendor's books when it culled the channel with the introduction of its Distribution Alliance Programme (DAP) in the US last May.
Co-location: where is it now?
Now that Compaq has bought in the capability to customise and configure, from one of its closest partners, what does that say about the prior relationship, and about co-location in general? Co-location was supposedly as close as a vendor could get to a distributor to promote lower inventory and other efficiencies, without owning it outright.
However, the very act of purchasing Inacom's distribution operation suggests this wasn't enough to provide Compaq with those efficiencies, as clearly illustrated by third quarter PC shipment figures for Compaq in the US, as reported by both Dataquest and IDC last year. Both researchers saw Dell overtaking Compaq to pole position during that period.
According to Dataquest, the direct PC vendor's market share surged to 17.1 per cent, from 13.4 per cent a year earlier, compared to Compaq's 15.3 per cent - 15 per cent a year before [vnunet.com 25 October 1999].
Channel strategy still to deliver
So Compaq has found out to its cost that it must go the whole hog to sell direct. With declarations by recently appointed chief executive Michael Capellas that Compaq is looking to sell up to 40 per cent of its PC output direct, the only way it stands a chance is to bring it all in-house.
Winkler claims the move will "complement Compaq's existing [channel] programmes - including Partner Direct and Agent programmes through which we ship directly to our customers on behalf of Value-added Resellers."
But with Compaq's recent track record of an incoherent channel strategy, this will be easier said than done. The channel - or what's left of it - both here and in the US, waits with bated breath.
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