November 17, 1997
Taking the Direct Route
By Bob O'Donnell
Direct sales, once the corner of the PC market held by second and third-tier clone
makers, has become legitimate. Compaq Computer, IBM, Hewlett-Packard, and now even Apple
Computer have determined that a segment of the PC community prefers to buy directly from
the manufacturer rather than traipse down to a local shop to buy a computer. For companies
such as Apple -- long dependent on the good graces of the channel -- this is a somewhat
risky proposition. Will online sales eat into overall sales rather than drive new sales?
The move toward direct purchasing seemed to start with mail-order catalog resellers,
who tended to offer better prices on the same goods as their retail counterparts. The
trend then moved toward purchasing straight from the system vendor themselves, cutting out
the middlemen altogether. Of course, direct sales are nothing new, but Dell Computer's
recent ascension into the No. 2 position of overall computer vendors, as well as the
amazing growth of mail-order vendors Gateway 2000 and Micron, offers indisputable evidence
that this sweeping transition has hit the mainstream.
In fact, most major manufacturers now offer direct sales in addition to their
established retail presence. The most recent addition is Apple Computer, which last week
introduced its online Apple Store. Like
the Dell, Gateway, and other sites, the store lets customers buy custom-configured Mac
systems directly from the company.
In Apple's case, the new sales outlet clearly filled a pent-up customer demand -- the
company reported that more than $500,000 in sales were made during the store's first 12
hours of operation. I don't find that surprising because as computer customers (for both
Macs and PCs) have grown increasingly savvy over the last few years, they've clearly
become more sensitive to pricing, personal requirements, and convenience, all of which are
addressed by the growing wealth of online "outlet" stores. Most of the computer
vendors' online stores offer prices that match the ones you'll find from local retailers.
In addition, you can customize (which is clearly worth something) and get the convenience
of placing orders at any time of day or night from your home or office. Compared to buying
a computer at a retail store, particularly when you know exactly what you want, that's
pretty attractive.
So, the critical question that remains to be answered for Apple, as well as other
vendors, is whether direct sales add to overall sales or end up cannibalizing them. I
don't think anyone would doubt that online sales efforts will reduce retail sales
somewhat. But frankly, I wouldn't be surprised to see retail sales dip even more than the
online stores add because retailers who feel that they have to compete with vendors may
reduce the size of their orders. The result would not be good for the bottom line. And for
a company such as Apple, which has depended on retail stores for a vast majority of its
sales for such a long time, that could be a big problem.
On the eve of the industry's annual Comdex convention, the roots of which was a dealer
expo, I have to wonder how this move toward direct vendor sales will affect the computer
industry. Clearly, there's a demand for both retail and online stores, and I think the two
can coexist. But as the pendulum shifts away from retail and toward direct sales, I'm
afraid it's bound to leave behind a destructive, messy path.
©
Copyright 1997, by InfoWorld Publishing Corp., a
subsidiary of IDG Communications, Inc. Reprinted from InfoWorld,
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