IBM to sell Aptiva direct

Starting January 1, consumers in North America will have to go to the ShopIBM Web site to get an Aptiva.

Big Blue described the decision to pull its Aptiva consumer PC from retail shelves as a "strategic retreat."

After years of lackluster sales, Big Blue is selling all of its consumer PCs via the direct method, at least temporarily. The decision does not affect its consumer line of ThinkPad i Series notebooks, which IBM will continue to sell at retail and direct over the Web.

But analysts said IBM may lack the initiative and cohesive strategy necessary to make a Web-only sales approach successful, because it doesn't effectively promote its consumer PCs, said analysts.

"It seems very hard to keep up your visibility by just being on the Web," said Stephen Baker, analyst with PC Data. "E-tailers and others are doing all kinds of other advertising to drive business. You kind of fall off the map if you're Web only."

Baker used the example of Acer, which has not done well following its exit from consumer retail sales. Acer took a Web-only approach but backed it with little advertising, he said.

PC manufacturers spend big money to promote their products, particularly those selling exclusively over the Web. Compaq, which spent $13.6 million on North America print advertising during the second quarter, increased its ad pages overall by 80 percent during the first half of 1998, according to Adscope. IBM, by contrast, spent about $16 million on advertising during the same period, but virtually none of that went to promoting Aptiva.

Ironically, IBM is one of the biggest high-tech advertisers, ranking No. 2 during the first half in ad pages behind Microsoft and ahead of Compaq, Hewlett-Packard, and Dell Computer, according to Adscope.

PC manufacturers take a number of approaches to advertising systems. Dell, for example, heavily depends on print and some TV ads to drive traffic to its Web site.

Other companies give marketing dollars back to retailers, who advertise systems locally in Sunday circulars, rather than buying ads directly.

HP, for example, is ramping up a new marketing initiative for its Pavilion line of consumer PCs. The first ads will appear on Sunday from Best Buy and other retailers, said Kelly Spang, analyst with Technology Business Research.

IBM spokesperson Trink Guarino acknowledged the company had some work to do on its direct sales strategy, but said that it would come over time. "We've just started this process, and we're still trying to decide how to drive traffic to the site and what our advertising strategy will be."

But the nature of IBM's retreat bodes badly for any serious consumer advertising effort on IBM's part, said analysts.

Kevin Knox, research director for Gartner Group, characterized IBM's retreat as a means of minimizing "their losses in the consumer space. I actually view this as a positive, and IBM recognizing they can't be everything to everyone. They're going to attack areas where they can make money, and, frankly, Aptiva isn't one of those areas."

IBM's consumer PC retail market share dropped to about 10 percent from around 13 percent last year, according to PC Data. Aptiva, which sold on average 10 to 15 percent above competitive models, took a beating from Compaq, Emachines, and other manufacturers in the sub-$1,000 PC market.

"Aptiva just wasn't doing that well in the retail channel," said Guarino. "It just wasn't working for us, at least today. So we needed to fix that, and we're going to work on that."

Guarino did not discount the possibility IBM would later bring Aptiva back to retail but said it could take some time.

"If a product isn't working in the retail channel, you're not losing anything by taking it out, because you didn't have any to begin with it," said Guarino.

The decision only affects the United States; IBM plans to continue selling Aptiva at retail in other geographies.

IBM earlier this month folded its consumer PC group into its business division in an effort to revitalize the troubled group.

The new group will emphasize e-business solutions for consumers and take lessons learned from ThinkPad efforts.

"The success of the business model for ThinkPad is what led us to believe we have to change the business model for Aptivas," said Guarino.

But ThinkPad fights an uphill battle, said Baker, because consumers widely prefer PCs to notebooks. "It might not be the best model to follow," he said.

Compaq and Toshiba run neck and neck at about 32 percent share each in the retail notebook market, according to PC Data. IBM fluctuates between 14 to 16 percent.

IBM has a lot to prove in taking Aptiva direct, said Baker, who questioned the wisdom of Big Blue's decision.

"It seems like IBM continually retreats from putting their brand name in front of consumers," said Baker. "It's fine if they want to do that, but it seems like a tremendous waste of a good old brand name that still carries a lot of weight."