According to the experts, online commerce is going to be big business. Market researcher IDC estimates global e-commerce spending will grow from $1.6bn in 2003 to $7.1bn in 2007, with a compound annual growth rate of just under 45 per cent.
There are many who believe online commerce is a technological and business inevitability. In the IT sphere they point to Dell as an example of how an online model can work. Dell, after all, is the biggest PC vendor in the world. The difficulty for indirect vendors and their channel partners is that online commerce suits Dell’s direct model much more than it does a channel sales structure. If you can convince a customer to find a product online and purchase it without making a phone call, you effectively cut out the need for a channel partner.
Of course, it’s not quite that simple. If it was, most of the channel would have disappeared by now. As IDC consultant John Gilsenan points out, many Dell customers have already made the decision to bypass the channel. ‘But for people who use the channel, it defeats the purpose to buy online. They want the personal touch,’ he says.
The point is echoed by Dermot Woodgate, business development manager at CARA. He argues that companies like CARA compete against online suppliers ‘by offering a highly personalised service that removes some of the frustrations that arise when dealing with organisations that treat their clients as numbers and not as individuals. Yes, we use technology, but as a support tool for our business, not as a replacement for the human touch—and not as an excuse if things go wrong’. He adds that customers want ‘the ability to develop solid relationships with their suppliers, to allow them a degree of flexibility if things go wrong’. Online commerce can help to reduce costs, but it also cuts back on flexibility. ‘We like to deal with people who can give a little—who can make that one per cent cut. That’s impossible to automate.’
Sinead Woods, marketing manager at DSS, argues personal relationships developed over the years have been very important to the company. ‘Our reasons for not conducting online commerce with [customers] comes down to the fact that personal relationships are important to us in verifying that the products being ordered are the correct ones for the user and will fit the purpose for which they are intended,’ she says. ‘Online transactions remove this element of personal interaction and could affect the end result for the customer.’
Old story
There’s nothing new in resellers emphasising the value of personal relationships in their dealings with customers as a business advantage. It’s an argument they’ve been deploying for many years against direct sales rivals and to justify their value to their indirect vendor partners. But some people are not convinced. One such is Kelly Murphy, chief technology officer at Marrakech, a software developer whose product automates buying relationships between companies and suppliers with whom discount pricing rates have been agreed. Its business case argues that consistently buying ‘on agreement’ can result in major cost savings, and its software makes it easy for employees to buy from approved suppliers.
Murphy believes the success of Dell is down to the fact that distribution channels are ‘completely inefficient, add a lot of cost and do not add value to the customer’. He says those who think online commerce isn’t going to happen are mistaken. As for the emphasis on personal relationships, Murphy argues taking the hassle out of the process by automating it should free people up ‘to focus on the relationship’.
Resellers don’t rule out online commerce, but they have very clear ideas of how widely they think it can be adopted. Woods at DSS says there hasn’t been significant demand from customers, but it has established online purchasing facilities for specific clients. For example, DSS provides some education clients with on-line ordering facilities for the IT staff and the student population on campus. Pre-agreed desktops and laptops are displayed on a password protected part of the DSS website and can be ordered, tracked and paid for by credit card. A number of resellers say the main part of their ‘online’ activities is based around similar activities, with catalogues provided online to customers for consumable products, for example.
Woodgate argues online commerce will be used to automate routine transactions to allow companies ‘to concentrate their resources on managing non-standard and ‘difficult’ transactions’, he predicts. But he is adamant doing business online is ‘not a replacement for the personal touch, particularly with large corporates where good account management is still absolutely critical to developing the relationship’.
The separation between the automating of routine transactions and the personal relationship extends up the supply chain. Peadar Dolan, sales director at distributor CMS Peripherals, believes online commerce will play a bigger role in 2005 but stresses it will be complementary to direct personal contact. ‘At CMS Peripherals, the art of one-to-one negotiation is still alive and well on all fronts and will still be the key driver of business for us in 2005 on the supply and sales side,’ he says.
Paul White, managing director of Sharptext, says it set up a Web site six years ago, putting it ‘well ahead of the curve, but although it was possible for customers to buy online, there was a very slow take up’. It is beginning to pick up, but mainly for commodity or consumer products. He argues people tend to shy away from buying more complicated products or solutions online because they want a level of assurance the Web cannot give them. ‘People can go online and put a solution together,’ he says. ‘There are the tools to do that, but they want reassurance. They need a huge amount of advice for some things.’ The channel represents a ‘huge knowledge base contained within individuals engaging with their customers,’ he adds. ‘Customers are voting with their feet—they’re calling us to discuss the detail of the deal. Somebody has to stand over the solution ultimately.’
David Laird, managing director of Datapac agrees. ‘Things are changing all the time in this industry. Customers need people who can provide advice and take on the responsibility if something goes wrong. A lot of times, things don’t work the first time. People know the buck will stop with them [channel partners].’
Unsurprisingly, Woodgate at Cara is also keen to stress the importance of the channel. ‘It’s very difficult to buy a solution online,’ he says. ‘Have you ever tried to configure a server online? You’d need to be a genius! We see ourselves as trying to find the best price in the market for our customers and it involves quite a bit of work. It’s impossible to deliver IT solutions purely online. We remain an integral part of the value chain.’ Laird at Datapac adds: ‘There’s an awful lot in terms of advice and experience we can offer the customer which can make a big difference to the quality of their infrastructure and solutions. That’s why we’re all still in business and doing well.’
Reluctance
Whatever the projections for online commerce, the Irish market appears to be less willing or able to adopt online commerce than others. This may be partly cultural and partly down to the size of the market. As White points out, there are an awful lot of SMEs in the Irish market and very few of those can afford to have their own IT department. Instead, many of them turn to resellers to act as their outsourced IT department. As advice about solutions can’t really be provided online, the relationship with the reseller has to be based on more than the Web.
Although White doesn’t mention it, the obverse would be that government and semistate companies, areas where Dell does well, tend to have their own IT departments. With their own installed knowledge base, they can afford to buy from Dell and build their own solutions. The nature of the Irish market also makes it harder for outside distributors and resellers to establish a bridgehead here against the indigenous players. A number of distributors have set up offices in Ireland only to close them a year or so later.
The size of the market mitigates against large broadliners operating on the ground in Ireland. For them, online commerce would be possibly the only viable way of doing business in Ireland. To defend themselves against the threat from the invaders, Irish distributors and resellers play up the personal relationship. This is understandable because if online commerce became the dominant way of doing business, customers would be more willing to countenance ordering from distributors outside the country.
Gilsenan agrees the small size of the market could act as a deterrent. Although online commerce ‘is seen to be the way to go, nobody is buying very large repeatable combinations’. But online commerce is a viable route to market and is making money for a lot of companies. With channel partners selling themselves on being able to offer more than customers can get online, things are likely to get increasingly difficult. ‘You’re reinventing yourself all the time,’ Gilsenan says. Maybe so, but it’s just as difficult for a business to rely solely on online commerce. As Murphy at Marrakech admits, ‘there isn’t one homogenous market, there are different demands and different people with different requirements. Not everything has to be direct, but if you can take inefficiencies out of it [the supply chain], why wouldn’t you?’
It might be worth bearing in mind, however, that a lot of businesses which slimmed down their high street operations because of the potential of online commerce, such as banks, are now beginning to change direction and make a virtue of the fact they have high street locations. Those companies have begun to recognise that online business is a supplementary channel to market, not a replacement. It’s not likely to be a mistake many companies in the channel will make.
28/02/05
Subscribers 0
Fans 0
Followers 0
Followers