Compaq plays both sides
The leading PC maker puts a hold on agreements with 10 companies that sell its Presario systems, including Buy.com and Cyberian Outpost.
Compaq suspended sales agreements with as many as ten companies that only sell Compaq's Presario computers over the Internet, as it works to manage emerging conflicts with traditional retailers. The affected companies include Buy.com, Cyberian Outpost, Value America, CompuCom Systems' PCSave, and even Compaq's own Shopping.com. The result: most are effectively unable to get and sell new shipments of the line of consumer computers.
The move is aimed only at companies that only sell over the Internet, according to company executives. Although these resellers typically buy their systems from a distributor such as Ingram Micro and Technology Data, just as "brick and mortar" stores do, some such as OnSale are selling the systems for less than their counterparts because they don't need to stock systems themselves or maintain the necessary warehouses.
In the long term, Roger Kay, a PC industry analyst with International Data Corporation believes Compaq sees the Internet as the buying channel of preference for consumers, but in the meanwhile, "Compaq can't afford to disturb existing retailers in favor of new outlets," he said.
The companies that stand to be most affected by the decision appear to be those such as OnSale and Buy.com which rely on the distributors to stock and ship the systems to customers. Buy.com did not return calls seeking comment.
"The impact on us would be non-material," said Jerry Kaplan, CEO of Onsale. "These systems represent a very small percent of our overall sales."
Apparently the company does have the ability to sell some older Presarios while more recently introduced systems will not be available for sale, according to Kaplan.
Not all Internet-only stores will be affected equally by the measure. Darryl Peck, CEO of Cyberian Outpost, said his company maintains inventory in its own warehouse, and will continue to "sell through" its current inventory of Presarios.
"Some people are saying there was pressure from other resellers [and] some saying [Compaq] wants to take it all for themselves. That's ridiculous," Peck said. "They just want to get their act together."
Peck expressed optimism that Cyberian will be reauthorized to sell Compaq systems, and said the move isn't impacting his business.
"Undoubtedly [Compaq's] concern is that the Internet is stirring up the pot in such a way as it reduces their control over their distribution channels. Until they understand the effects of this new, lower-cost channel, they're going to be reluctant to play," Kaplan theorized.
Other online vendors were either unwilling to comment or were still in the process of figuring out the impact of Compaq's moves.
Compaq's decision comes on the heels of the formation of a new business unit that is focused on selling PCs and services over the Web, highlighting the challenges that face that face Compaq, Hewlett-Packard, IBM and Apple Computer as they try to mimic the success of direct-only PC vendors Dell Computer and Gateway.
Leslie Adams, Compaq's U.S. director of consumer marketing, said Compaq took the action in response to the growing number of online retailers seeking authorization to sell only its PCs. Traditional retailers who are opening online outlets have also been seeking to sell over the Internet in greater numbers, further adding to the urgency of the situation for Compaq.
Interestingly enough, Compaq itself is dependent on at least one online reseller for its own direct sales efforts. The company outsources much of its own direct sales effort to a subsidiary of Insight, a large online reseller specializing in corporate sales, according to sources. The Insight subsidiary handles the customer sales call for Compaq as well as delivering third-party products on behalf of Compaq.
Compaq said it expects to reach new agreements with the Internet companies within 30 days.