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Compaq seeks direct sales balance

Judging by recent figures, the computer maker is making significant gains through the direct approach and through its new "agent" sales technique.

Judging by recent revenue figures, Compaq seems to have found the right balance between selling computers directly to the customer and selling through traditional computer-shop-on-the-corner channels.

In direct sales, the Houston, Texas, company is pulling in a million dollars a day in its Presario line for home computers and more than a million a day in its Prosignia line for small and medium businesses, Compaq executives said.

The risk of direct sales is that a company will anger the local resellers where many small businesses go for help when they need to choose, buy, install, and maintain their computers.

Compaq has addressed the problem with its new "agent" sales technique--a hybrid of traditional channel sales and direct sales that cut out the middleman. Those sales account for about 20 percent of the small business direct sales revenue, said Kenny Kurtzman, vice president of Compaq.com and the person who spearheaded Compaq's November direct sales push.

With the agent technique, local resellers refer customers to Compaq, which ships the computer straight to the customer. The reseller gets a commission from Compaq, charges for service and support of the equipment, and doesn't have to worry about inventory, Kurtzman said.

The direct sales thrust from Compaq "hasn't affected us a bit," said Mike Boyle, chief executive of Compaq reseller Computerland Albuquerque-Santa Fe in New Mexico, saying that it has kept customers in the Compaq camp.

"If [customers] were calling Dell or Gateway, I didn't get squat," he said. And services such as installing and maintaining Compaq equipment is still lucrative. "We make a lot of money on service calls for Compaq," he said.

Compaq is still the No. 1 PC vendor, but it's been scrambling to capture the momentum of Dell, which relies solely on direct sales. But in a way, Compaq will benefit from Dell's efforts to establish the legitimacy of direct sales, said Roger Kay, an analyst with International Data Corporation.

"I think they're going to be giving Dell a run for their money pretty soon," Kay said. "The market is becoming more and more used to the idea that you can order computers on the Web." Because Compaq has almost twice the worldwide sales as Dell, it will be relatively easy for the company to achieve the same revenue from direct sales as Dell.

Dell declined to release current sales figures, but in November the company was selling $10 million a day online of $50 million total, said spokesman Dave Dix. About 80 percent of its sales are to businesses and 20 percent to the consumer market, he said.

Compaq's Kurtzman said that about $700,000 of the Prosignia daily revenue is "incremental," meaning that Compaq is drawing customers away from competitors such as Dell, Gateway, Hewlett-Packard, or IBM.

But Kay was skeptical that 70 percent of Compaq's direct sales is business stolen from the competition. "I don't think offering a new order mechanism represents much of an incremental benefit for customers to go with Compaq when they would have otherwise gone Gateway or Dell," he said.

Kurtzman said most direct sales deals are closed over the phone. However, 8 to 10 percent take place completely on the Internet, he said. Compaq surveys its customers to find out how they buy systems, he said, and about 30 percent say they use the Web to help choose their system--for example, to price various configurations.

"It's been pretty successful," Kurtzman said of the direct campaign. The program has met its goal of shipping systems on average within five days, and because Prosignia buyers tend to be more technically savvy, they buy higher-end, more expensive systems, he said.

A new direct sales initiative
But direct sales of the small business Prosignia systems are dwarfed by direct sales to Compaq's large corporate customers, which run about $10 million a day, reported Gillian Munson, an analyst with Morgan Stanley Dean Witter. In addition, Compaq sells about $4 million to government, education, and medical accounts.

In January, Compaq began a new program that ties large corporations into a special Compaq network, letting them tailor and order systems.

Dell has a similar program for its large accounts, Kay said.

While Compaq's new program technically is ordering over the Internet, statistics for on-line sales could be skewed since the large corporate deals typically are closed in person, he said.