Apple takes Mac sales to Net

As it looks for ways to improve its financial condition, Apple will authorize select dealers to sell Mac products on the Internet.

3 min read
As it continues to look for ways to improve its financial condition,
Apple Computer (AAPL) says it will authorize a select few dealers to sell Macintosh products over the Internet.

Internet computer sales are nothing new for direct vendors like Power Computing and Dell Computer because the practice enables them to sell computers at low cost. Dell says it manages to sell more than $1 million in products through the Web each day.

But, like other computer companies with products in retail stores, Apple has to tiptoe into electronic commerce out of fear that it will cut into the profit margins of retailers.

Apple will for the first time officially allow companies to sell their products on the Internet but will carefully limit participants in the program to those who are projected to do more than $10 million in annual sales. However, limiting sales to an exclusive group of resellers may be shortsighted for a company desperately trying to turn itself around.

Apple contends that there are good reasons to move cautiously, at least in the early stages. "Not everyone has the ability to run these kinds of programs effectively. We want to work with a cadre of more established resellers," says Greg Rhine, vice president of channel and sales development at Apple.

Aside from generating high sales, companies in the program must be able to provide customer support at least 6 days a week, 12 hours a day. The companies also need to have an infrastructure for reporting sales and other information to Apple.

Rhine conceded that the program's requirements were stringent and said they were deliberately so. Apple wants to limit participation in the program and, at least initially, allow only a few resellers to sell Apple products over the Web.

"This is not designed to allow our resellers to sell en masse over the Web," Rhine said. Resellers that do not receive permission from Apple to sell over the Web but do so anyway run the risk of losing their authorization. Without authorization, a reseller can not purchase equipment from Apple or its distributors.

Although the high barriers to entry in the program may seem odd for a company that publicly states that it wants to increase its market share, it is not the first time Apple has limited sales participation in a time of crisis.

In 1996, Apple decided to place new, higher requirements on its mail-order resellers. The new rules required, among other demands, that mail-order resellers sell at least $10 million annually through their catalog operations. No minimum sales requirements existed before.

The rules effectively shrank the number of Apple catalog dealers from around 22 to fewer than 10. Among the companies that had to shut down operations were some of the largest Apple resellers in the country, including companies that emphasized their Apple expertise over other platforms, according to channel sources and former Apple executives.

Many of the regulations surrounding the new Web program are similar to the mail-order restrictions. Industry analysts say Apple may be wise in slowly rolling out such a program, however.

"Apple [and other computer vendors] have not authorized companies to sell over the Web because they are afraid of price erosion," says Mike Hagan, CEO of Associated Research Services, a PC-industry research firm that specializes in marketing and distribution issues.

Apple can't afford to alienate retailers by potentially cutting into sales or profit margins--many retailers are already devoting less shelf space to Macintosh products and more space to Windows-based machines.

"The problem with Web sales is that companies really lose all sense of policing. If there are advertisements in a catalog, they can keep up with pricing and how their product is being presented, but on the Web, they can't," Hagan says.

Apple isn't the only company grappling with these issues, either. "Other vendors like Hewlett-Packard are still in that mode now where they are figuring out how do &#;91Internet sales] without screwing up current operations," Hagan observes.

By keeping an "upper tier" of players, Apple can see what kind of sales volume they need to prepare for while enabling themselves to protect against price erosion in current channel structures, Hagan says.

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