Computer Selling-Game Changes
SELLING a business computer used to be a simple affair. Computer stores marketed desk-top machines to individuals and small businesses. Computermakers and resellers sold minicomputers to mid-size companies. Computermakers ped- dled their mainframes to large corporations. Sales grew. Markets were well-defined.
But the rapid march of technology has changed all that. It has overrun traditional market positions, and left behind a radically altered terrain. Though smoke still shrouds the landscape, several important changes are discernible.
Consider the shifts under way at Digital Equipment Corporation. For years the computer manufacturer made money selling its proprietary systems. Customers with old Digital machines upgraded to new Digital computers because their software wouldn't run on other systems.
Then, a few years ago, Sun Microsystems popularized the Unix system for computers. Unix is one of several independent operating systems that are overtaking the older, proprietary systems. Challenged by Sun's growing sales, Digital and other computermakers announced last year that they would offer Unix-based machines too.
Unix users are no longer tied to a specific brand of computer. They can move their software onto other hardware with increasing ease - even begin linking together different kinds of computers. Thus, Digital will have to slash its usual profit margins to keep its new Unix-based machines price competitive.
"You have to be a low-cost producer or you can't play in the game," says Bill Armitage, manager of the company's domestic general-systems business.
As computers become more generic, they are also becoming more powerful. Today's $150,000 minicomputer can handle the work that a $1 million machine handled five years ago.
Large corporations that used to rely on mainframe computers can now consider minicomputers and networks. The lower cost of the new machines is attracting more small and medium-sized customers, who represent an estimated $40 billion market worldwide, growing at 17 or 18 percent a year - twice as fast as the total computer market.
Since Digital hasn't concentrated on this market - and the market's lower profit margins don't justify a national sales force - the company is recruiting a network of dealers who specialize in a version of Unix known as SCO.
Compaq Computer Corporation is also courting those dealers with special knowledge of network systems, such as SCO Unix and Novell NetWare. These dealers are increasingly important partners for computermakers.
"These big companies calling us little people - it has got to tell you something," says Frank Mogavero, a Los Angeles reseller who Digital signed up.
The resellers and dealers are also changing their strategies because of the new technology.
A network linking together several computers is far more complicated and sophisticated than the stand-alone desktop machine. It requires a high level of expertise and technical support - something that an all-purpose dealer can't provide.
So resellers are specializing.
Three years ago, for example, ComputerLand Corporation began to cater to medium-size and large businesses. It closed several downtown stores in major cities and moved to cheaper back-room offices. The 750-store chain now claims to serve 400 of the Fortune 500 companies.
Other dealer chains are aiming at the low-end market, setting up so-called "superstores." That's part of the strategy of Intelligent Electronics Inc., a fast-growing wholesaler.
When a software product for a small business sold for $15,000 with a $6,000 profit, a dealer could afford a salesman or two, says Jim Ciccarelli, who heads the chain's franchise division. Today, "that same solution costs $4,000 with a 20 percent profit. The salesperson can't sell enough in a month." Hence the superstore, which aims to sell lots of machines at very low profit margins.
The recession is accelerating this specialization. The nation's top two personal-computer retailers - Businessland and Computer Factory - have fallen on hard times. "There's no doubt that there's a tremendous shakeout going on," says Alan Bernheimer, a ComputerLand spokesman.
"If you are a generalist in a marketplace, particularly in a large metropolitan area, I think you are in jeopardy," says Dan Shaver, vice president of marketing for MicroAge Inc., which has 780 locations worldwide.