Compaq deals with Beyond.com

In a non-exclusive deal, Beyond.com will operate a co-branded Web site for Compaq which will offer and distribute software to developers, consultants, and systems integrators in the Compaq Solutions Alliance Program.

Eventually, Beyond.com will provide software downloading services for the Compaq.com site, which serves both corporate and consumer customers.

"The big trend in software is digital downloading. Users can click and download to their computer," said Mark Breier, president and CEO of Beyond.com. Brier cites figures from Jupiter Communications forecasting that 35 percent of all software will be sold and electronically downloaded by 2002.

While Beyond.com is hoping to capitalize on that emerging trend, Compaq's larger mission is to create a walled garden of services and products that will create ongoing revenue streams to offset ever-decreasing PC prices.

PC companies can't compete just on price anymore, said Tony Amico, director of PC channels research at International Data Corporation; they have to offer "value-added services." Amico made his remarks at IDC's Directions 99 conference in San Francisco today.

Compaq hopes to stay linked to customers through an e-commerce strategy which includes the AltaVista search engine, the acquisition of the Shopping.com site which sells all manner of goods, and efforts to sell more of its computers directly to consumers.

Delivering software digitally to customers is another vital link in the chain, because Compaq can capture a slice of the revenue that normally goes out to retailers and resellers after the hardware sale. But as it moves to increase its Internet presence, Compaq has to be careful not to step on the toes of its current distribution partners.

"Everybody's rolling out e-commerce bells and whistles these days," said Jack Staff, chief economist at Zona Research. But what will be important to keep an eye on, he said, is how Compaq manages relationships with its current distribution partners such as retailers, consultants, and various other business partners.

Already there are signs that those relationships are strained. Last week, Compaq temporarily suspended sales authorization to several online-only purveyors of Presario consumer PCs as it figures out how to manage conflicts between low margin "brick and mortar" retailers and lower margin online resellers.

Another problem for traditional retailers and resellers is that Compaq isn't the only PC maker gathering items for a customer's shopping cart. Dell Computer is set to announce its own online superstore, called "Gigabuys.com," and just last week, Gateway purchased a stake in the online division of NECX, a Massachusetts-based reseller of PC equipment and software. HP has also said it will expand its online PC sales.

"The villain is not Michael Dell, it's the Internet," Amico said in reference to the CEO of Dell Computer, which has honed the direct sales model to drive tremendous sales growth at his company.