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Compaq tests Web sales waters

Compaq's "At home" offers only a few products, but could be the germ of a larger effort to bypass resellers and compete head-on with Dell and Gateway.

Compaq (CPQ), which has contemplated getting deeper into direct sales nearly all year, opened a home page this month dedicated to selling computers directly to consumers.

While Compaq's new At home page currently offers a modest number of systems and products, it could be the germ of a larger effort to bypass distributors and retailers and compete head-on with lower-cost direct marketers like Dell.

"It falls outside what resellers expect from a supplier, but it's the nature of the business today. The Internet is where people will shop in the future," said Dave Freeman, president of Advanced Computer Products, a computer reseller in Orange County. "There's not much we can do about it, except do the same thing."

The At home page is an e-commerce experiment as well as a way of accommodating the increasing use of the Internet to buy computers, said a spokeswoman for the company. The site kicked off October 8.

Historically, Compaq has sold its wares to resellers and retailers, who then sold to customers. While indirect sales like this can add three percent or more to the final price of a machine, resellers act as an extended sales and support force for a vendor. The increasing popularity of direct sales, however, has put pressure on companies to reorganize their reseller relationships and also prompted Compaq to install "built-to-order" manufacturing techniques to help it achieve price parity with direct vendors.

While Compaq has sold computers directly to consumers for some time, it has not done so to the same degree seen on At home. Direct Plus, a telemarketing operation that allows customers to buy Armada and DeskPro computers directly from Compaq, has been a relatively low-key operation for the past few years. Telephone representatives at Direct Plus, in fact, encourage customers calling in to buy computers to buy from resellers rather than through the direct service.

The company has also taken a relatively sedate approach to promoting sales on the Web. Until now, the company's Web site has been used for marketing, but not direct sales.

For instance, pages dedicated to computers for small businesses or corporations identify computer features, models and prices. However, the pages direct viewers to local resellers and do not contain links that will allow customers to buy computers online. Further, the 800 number for Direct Plus is nearly impossible to find on these home pages, if it is present at all.

This reseller-centric approach is all but lost on At home. There is a window for potential customers to locate a Compaq retailer, but it is sandwiched between a "Buy On Line" command window and an 800 number that feeds customers into a Compaq telemarketing operation.

"Our goal is to provide the opportunity for our customers to buy these products directly," Compaq CEO Eckhard Pfeiffer told an audience at the Wall Street Journal's Technology Summit this week. And although Pfeiffer said that the site is not created to undercut retailers, it will continue to expand. In the future, the site will contain an advanced interactive showroom, which will advise consumers on how to purchase computers.

The Internet, he said, is "forcing every business to reinvent itself."

The site closely mimics the buying experience found on sites by Dell and Gateway. Customers can custom configure computers, select accessories, and then order on the same page. Heavy use is made of bright graphics and drop-down menus to for component selection.

The difference comes in product selection. Compaq is currently limiting sales to high-end consumer models and one notebook model, the company has said. Right now, for instance, only three computers are available for purchase--a 266-MHz Pentium II Presario, a 300-MHz Pentium II Presario, and a 200-MHz Presario notebook. Both Dell and Gateway offer a multitude of business and consumer computers.

Bargain hunters may be disappointed with the site. Compaq sources said that items on the site will be offered for the "minimum advertised price," or the lowest price that retailers can offer in a newspaper ad without losing advertising co-op dollars from Compaq. A review of retailers demonstrated that Compaq adheres to the policy. A Presario 4840 with a 266-MHz Pentium II and 32MB of memory sold for $2,699 on the site, the same price that MicroWarehouse offers the computer for.

As it now exists, At home probably does not create severe conflicts between Compaq and its resellers, but clearly poses a challenge.

Compaq's site will likely reach a larger audience than the average retailer, said Freeman. Resellers, however, can provide products from a wide variety of vendors, can offer local service and support, and can run specials that Compaq cannot. ACP, for example, recently set up its own auction site, called Cyberswap, where viewers can bid on discounted products.

"It's a limited effort. They don't have everything on it," said Kevin Hause, computer analyst with International Data Corporation. Hause also noted that Compaq has reduced channel conflict with retailers through its pricing policy. Further, the Compaq site is not fixed in the minds of consumers as a place to go to buy computers.

Still, conflict could emerge if Compaq decides to sell at lower prices, which are possible because the computers no longer go through two- or three-tier distribution.

"The key question is how aggressive they are in pricing," said Hause. "As a long-term direction, they may see a way to gain better efficiencies," he added.