Compaq Computer has launched a new line of PCs and a direct sales strategy aimed squarely at Dell Computer.
The strategy, which applies only to the new line of Prosignia PCs launched today, is intended to offer small- and medium-sized businesses alternatives to purchasing PCs through Compaq's network of resellers and distributors, officials said.
Under the DirectPlus plan, users can order the new Prosignia lineup, including notebooks, desktops and servers, from the World Wide Web in any of "thousands" of configurations, officials said. Houston, Texas-based Compaq will ship a given order "as early as the next business day or an average of within five business days," said Compaq President and CEO Eckhard Pfeiffer at a press conference.
Compaq begins direct Prosignia sales in the US yesterday and next year will gradually roll out the scheme worldwide, beginning in the UK, officials said.
The plan is aimed directly at leaders of direct PC sales -- including direct-sales pioneer Dell as well as Gateway Inc. -- which have eaten into Compaq's market share in recent years. Compaq hopes the new scheme will give it an edge in reaching business with fewer than 500 employees, officials said.
"Compaq is competing head-to-head with direct vendors in one of the fastest growing segments," Pfeiffer said, referring to the small and medium-size business segment. "We have simply decided that we are not going to miss out on that opportunity."
The move had to be made, according to industry analysts.
“The direct channel has been eating their lunch and it was time not to let that happen anymore,” said Roger Kay, a PC analyst with International Data. in Framingham, Massachusetts.
To differentiate the new lineup from other direct sellers, Compaq is offering a suite of services and support for business that may not have a dedicated IS staff, officials said. Included in the services are software modules, one of which officials said eases building Internet storefronts and another for delivering encrypted digital files.
Compaq is also offering leasing services that will enable companies to pay for Prosignia machines and services through a single monthly bill.
Officials stressed that Compaq will maintain its traditional sales through resellers and distributors.
"I think we can match the two," Pfeiffer said. "We are giving choice to customers."
But analysts questioned how well Compaq will be able to do that.
"Customer choice is great but can they really continue this highwire tension between channel [sales] and the direct model?" questioned Laurie McCabe, service director at Summit Strategies in Boston.
The common fear among PC companies is that sales over the Internet can siphon off customers from agents that have traditionally handled sales. Compaq said it will offer its 11,000 U.S.-based resellers and distributors agent fees between 6 percent and 7 percent for each Prosignia sale they steer to Compaq.
One Compaq reseller that focuses sales on small and medium-sized business applauds the new plan but is not interested in the referral fees. Vernon Hills, Illinois-based CDW Computer Centers Inc. will snap up the low-priced Prosignia machines from Compaq and then sell them on their own to end customers, according to Joe Kremer, vice president of marketing at CDW.
"The only change for us is it gives us a [new PC] model that is meaningfully lower priced," Kremer said. "Compaq has been very cooperative."
Analysts noted that Compaq ups the ante for other PC vendors that are racing into the small and medium-sized business market, the fastest-growing segment of the US PC market.
"There is a lot at stake," said Andy Bose, president and CEO of Access Media International (USA) Inc.
The small and medium-sized business market in the US this year is on track to grow 20% over last year to 9.3 million units, Bose said. By comparison, over the same period the U.S. consumer market and the large enterprise market will expand 12% and 13% respectively in unit terms.
For its part, Dell said the Compaq announcement validates its own strategy.
"We pioneered the direct business model 14 years ago and people have been trying to replicate and redefine what it means," said Peter Scacco, director of corporate public relations for Dell. "We’re flattered when our indirect competitors try to be more Dell-like and imitate aspects of our direct business model ... It clearly validates what we already know. But what you see are really pilot projects.”
Scacco declined to talk in detail about pricing strategy.
“We're in a quiet period before our earnings release tomorrow," Scacco said. "It's probably no coincidence that they made this announcement today ... but you'll see our results tomorrow and we'll let the facts speak for themselves.”
Dell also questions whether Compaq can adopt its traditional business and corporate culture to fit the direct-sales model.
"The big question is how do you resolve the channel conflict issue – until that's resolved you really don't have a direct model. ... you just can't take bits and pieces and retrofit it on a different model,” Scacco said.
But even though the move to a direct model may be difficult, Compaq has been seriously preparing for this move and its pricing on the new models is very aggressive, said IDC's Kay.
“This has been coming for a long time. They've know they had to do this – it would have been difficult 18 months ago but they've been working on this for some time and they've carefully lined up all their ducks and they're prepared to make it happen," Kay said. "The resellers may be pulling out their hairs behind closed doors but in public they've been docile because they know this has to happen. They just can't mark up hardware anymore ... Compaq has let them known they have to add value, on services for example.”
The pricing on the new machines is very aggressive, Kay said.
Pricing and configuration of the new Prosignia machines include:
-- Prosignia Notebook 100, which can be configured through the Compaq DirectPlus program or over the telephone or Internet. The notebook has a hard drive of up to 12G bytes; an Intel Pentium II processor; one-touch access buttons for the Internet; frequently used applications; and starts at $US1,999 with a monthly lease option starting at $68.
-- The Prosignia Server 720, with Pentium II processors up to 450MHz; up to 384M bytes of memory; a Wide Ultra2 SCSI controller; and a hard drive up to 27G bytes. The system integrates Compaq's automatic server recovery technology, which restarts the server after a failure and also monitors the server temperature. Prices start at $1,447 with monthly leasing of $49.
-- The Prosignia Server 740, which offers dual-processing support for higher performance. Using Pentium II processors up to 450MHz, it has an integrated Wide Ultra SCSI-3 controller; up to 54.6Gb of hard disk; and 64Mb of memory upgradeable to 1Gb.
The server line also offers an optional Smart 2SL Array Controller that allows for real-time continuous operation in the event of a disk-drive failure. The 740 model ships with assorted management software, including Compaq Insight Manager. Prices start at $1,731 with monthly lease prices starting at $59.
The new series of online services include:
-- Electronic-commerce capabilities called "online.com," allowing small businesses to create and manage a World Wide Web-based storefront within 24 hours. The service includes order processing and billing for a starting monthly fee of $30.
-- Online.delivery, providing secure and trackable delivery of digital business files over the Internet with additional services from United Parcel Service, and a partnership between Compaq and electronic file transfer company e-Parcel. Prices range from $1 to $7 per delivery, depending on file size and options.
-- Online.briefcase, which enables users to access information from their PC using any computer on the Internet. The cost starts at $10 monthly.
-- Online.connectivity, offered through a partnership with GTE Corp.'s Internetworking, basic Internet access and Web hosting are offered for $20 monthly.
-- A data protection service called "online.backup" with prices starting at $10 monthly. This service is the result of a partnership between Compaq and NovaStor.
-- Online.library, which includes electronic books and training software combined in a reference library. Macmillan Computer Publishing USA worked with Compaq on the library.
The new flurry of services also includes CarePAQ, a packaged service and support portfolio for small and medium-size businesses. Available services consist of extended warranties, on-site hardware service, installation and start-up service and software support for more than 200 business applications. CarePAQ will provide customers with technical help 24 hours a day.
Compaq, in Houston, can be reached at +1-281-370-0670 or http://www.compaq.com/.
(Additional reporting by Marc Ferranti and Nancy Weil)