PC buyers bypassing middlemen to deal with manufacturers More companies now moving into direct-sales field


October 13, 1997|By HOUSTON CHRONICLE

Businesses and individuals are changing the way they buy personal computers in a shift that's shaking the foundations of the PC industry, according to a new industry research study.

Rather than go through retailers and middlemen, more buyers want to get their computers directly from the manufacturer.

It could be as big a change for the industry as the introduction of the original IBM PC, or the commoditization of PC hardware that almost brought down Compaq Computer Corp. in the early 1990s, said Dataquest senior analyst Scott Miller, who worked on the group's study.

As a result, more companies are trying to get into the direct-sales game, while others -- including Compaq Computer Corp. and International Business Machines Corp. -- are changing the way they build computers.

Miller said the biggest inspiration for the shift is the success of Dell Computer Corp. of Austin, Texas, which was selling direct before direct was cool.

"Dell's dramatic success has highlighted the existing inefficiencies and disconnects found in the indirect model," Miller said, referring to the traditional PC marketing system in which middlemen take orders from customers. "It's part of the maturing of the industry." From the start of the PC industry, business computers have mostly been sold through resellers -- middlemen who take orders from customers, acquire machines from manufacturers and then customize the systems.

This is known as the indirect model of selling PCs, because the customer does not deal directly with the manufacturer.

In the direct model, pioneered by Dell and others, customers contact the PC maker directly. The computers are built as orders come in, cutting down on inventory costs and allowing customers a greater choice as to how the machines are configured.

Direct marketers' costs are generally less than those of indirect vendors, sometimes by as much as 15 percent.

The biggest and most experienced players in the direct market -- Dell, Gateway and Micron -- have grown at a faster rate than the rest of the computer industry.

For example, Dell had sales of $7.8 billion in its last fiscal year, a 57 percent increase, nearly three times the approximately 20 percent growth rate for the PC business overall.

Dell is now nipping at the heels of No. 1 PC vendor Compaq.

The direct business is growing faster than the PC industry itself, Miller said. Direct sales via fax, phone and the Internet in the first half of 1996 were 17.4 percent of the total PC market. In the same period this year, the figure was 18.3 percent, a growth rate of about 27.2 percent, Miller said.

Dataquest predicts that the personal computer industry will grow by about 16.6 percent in 1997.

Pub Date: 10/13/97

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