Resellers caught in the cross-fire of reduced hardware margins and direct selling have discovered an unexpected ally to help combat the economic blues — the millennium bug.
Reports from the US suggest companies like Compaq are struggling with excessive inventory levels and a drop in component costs. While the flood of PCs is good news for users, re-sellers are feeling the squeeze more than ever before. But hardware upgrades for year 2000 problems may join other factors in making resellers smile a little.
“Y2K is a deadline that cannot be moved — companies will have to upgrade,” says Matt Kenealy, managing director of consulting and service firm Axon Computertime.
Kenealy says the PC market has been at the bottom of its product cycle for the past few months. Intel’s launch of the Pentium II, coupled with Microsoft’s impending launch of Windows 98 and NT 5.0 should provide impetus to a flat market. Add that to the upgrade path many companies are on for Y2K compliance and Kenealy can see the light at the end of the tunnel.
The “tunnel” in this case can seem quite long — the Asian crisis, coupled with low business confidence in New Zealand means IT dollars are scarce.
According to Kenealy, Compaq’s US model hasn’t affected pricing in New Zealand, although he says that pressure will trickle down to us eventually.
To counter this, Axon Computer-time has been moving its core business away from the hardware end of the industry.
“More than 60% of our business now comes from the service and support area.”
Kenealy believes the major differences between resellers comes from their ability to add value to a product.
“Direct selling certainly suits a particular part of the market. We can offer anything the direct model offers plus a whole lot more.” Some companies have large enough IT departments to manage the costs incurred with running a PC or network, but others prefer to integrate training, management and purchasing into one package. Kenealy says that’s where a company like Axon Computertime can make money.
“The cost of the equipment is such a tiny part of any project and yet it’s the easiest for people to latch on to.”
Eagle Technology is also shifting its emphasis from hardware to service and support. Sales manager Mike Jones says Eagle has doubled the size of its support and services group in the past 12 months.
“Anyone can deliver hardware. Discounting has been severe here over the last couple of years so it’s not a new happening.”
Jones says more of the vendors are operating a direct-sales model, which can cut into a reseller’s earnings.
“We’re looking to new solutions like outsourcing or document management that we wouldn’t have had two years ago.”