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View from the Hill - #1

SPARC resellers - are they important? Do we really need them?

October 1999:- This is a column by Zsolt Kerekes publisher of the SPARC Product Directory.
See also:- article:- Channel Strategies for IT OEMs: Recruiting VARs in Europe
next View from the Hill article, SPARC Resellers in the USA, SPARC Resellers in the UK, other SPARC articles, SPARC - news

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I think it's now safe to say that luck had a good part to play in Sun's successful business development. It wasn't just technology and good timing... More views from the hill...

In the mid to late 1980's the computer market was going through two major changes, one of which was obvious to everyone at the time. The other change only became obvious later:- to people who specialized in marketing.

The obvious change was of course, the desire for and acceptance of open systems. This has been widely documented, and was mentioned in my 1997 article celebrating the first ten years of SPARC systems. People were just basically fed up with the high costs of being locked in to proprietary systems. The promise of open systems was that you could shop around and buy upgrades or replacment systems from someone who was not your original supplier, and market forces would help to keep a lid on the costs.

The less obvious change was that resellers (or channels - as marketers in manufacturers like to call them) became more important than manufacturers, as the biggest suppliers to most end-users.

There were were 2 economic reasons for this happening at that time.

  • Technology was reducing the average price of systems, so that it was no longer viable for the sales people from DEC, or IBM or any manufacturer to visit all their customers
  • Open Systems meant that the lowest cost and best performing system bought by the typical end-user might include computers from one place, memory from another, monitors from a third place, and networking glue and software from other places. For most customers the value they bought from any one manufacturer would have precluded any of the manufacturers getting directly involved, but the total value of the integrated system was a very attractive piece of business for a reseller or systems integrator - who could still make a profit even after talking to - and even visiting the end customer.

Somebody forgot to tell IBM and DEC that the second change was happening. Their reaction to falling system costs was apparently to try and hang onto as much of this business as they could take themselves. These companies already had big headcounts (by today's standards) and they decided that it was better to take the juiciest business directly, to avoid the massive layoffs and restructuring which would eventually come anyway. As the size of each piece of business gradually shrunk, the resellers of those companies were often shunted aside, ignored or regarded as competitors to the internal sales force.

In the meantime, the people at Sun Microsystems knew they wanted to replace IBM and DEC, but they had the practical problem of being a very much smaller company, with tiny headcount, and limited resources. Sun marketers decided to amplify their marketing efforts by working with 3rd party manufacturers to provide compatible add-in products (even when they later became competitors - as with Sun's freely licensed SBus). Sun also had to cultivate resellers who would of necessity develop the business, and make the sale, because Sun didn't have salespeople who could parachute in at the last moment and snatch the business. Sun therefore had to rely on resellers to develop Sun's own business. Resellers gradually learned that this was a partnership which worked in fact, and was not part of the latest mission statement which would be blown away when the next quarter's financial results came in.

By the mid 1990's it became obvious to every manufacturer in the computer market that resellers were very important, and even IBM and DEC tried to change their tune. But by then it was too late to recover lost markets, and change bad habits. By that time Sun was doing over 70% of its business in Europe via resellers, and over 90% in Japan. The US was a little behind that trend, but Sun's target was claimed to be 80% there as well.

Then a new factor came in to possibly change the rules for everyone once again. Its most visible and successful proponent was a small company which didn't have a large sales force, and it didn't have a strong reseller channel. It was Dell Computer - and of course the paradigm shift was the web.

Nearly every business magazine you read today will tell you that, by lowering the cost of sales, the web will remove the need for resellers, and that manufacturers will politely, then firmly shunt their channels aside in the race to supply direct. So, will the SPARC reseller fade away and be replaced by a giant web mall run at www.sun.com?

Well, the interesting thing about the web is that as well as reducing the marketing costs for mega large suppliers such as manufacturers, it also increases the economic reach of micro small niche suppliers. In my view manufacturers and resellers can coexist in a web dominated market in areas where this makes best sense for the customer. True, many resellers who fail to take up the web paradigm will be replaced by competitors with lower marketing costs, but also some manufacturers who fail to meet the web challenge will change role to being commodity suppliers to large resellers who have been better at branding the products they sell. There are many examples where a reseller is always a better supplier to the end-user than the manufacturer of those products. Here are some examples:-

  • if you want to buy a second hand SPARC system, built to original specification, or even a higher spec using faster disks and other peripherals which were not available when the model was originally launched - who do you call? The manufacturer - or a specialist broker? This isn't a serious question. Nobody could imagine that the best place to buy this would the original manufacturer. Even if the manufacturer has a wonderful web site - their interest is feeding their factory with orders for new systems.
  • if you own a portable PC - a web site which can sell you everything you need for a portable - could be set up by anyone. However, most manufacturers are loathe to sell other companies products, so the chances are that the best suppliers of products for portables will always be reseller web sites, taking the best products from a bunch of disparate OEM's.
  • if you're buying storage products such as disk drives, memory, tape etc - web sites from specialist storage resellers today already offer better selections than any manufacturer site.
  • if you want to buy a rackmount SPARC system today, then you should be aware that the best place to buy such products is almost certainly not from Sun, even if the systems you buy include Sun motherboards. The reason? Sun did not take this market seriously for many years, and in fact exited the embedded rackmount SPARC market in the early 1990's, because it was less attractive than the faster growing desktop market. When Sun exited, they licensed their first 6U VME SPARC card to FORCE COMPUTERS which later, with other competitors, went on to develop original new designs. Sun has reentered this market recently which has become more attractive as ISP's save money by installing high density rackmount systems instead of hundreds of desktop models. However, if you look around the web generally, and this web site in particular you'll see that the rackmount SPARC market is a very competitive market in which Sun is only a small player.

My belief is that nearly every segment in the computer market will see major changes. The companies which will dominate those segments will sometimes be the manufacturers or resellers of today. The learning curve of using the web successfully will be mastered first by those companies which are experimenting with web advertising and brand building today. They have a head start compared with vendors who have web sites which noone can find. And the companies without web sites at all, are likely to be the first casualties in the market realignments to come.

Conclusion:- I think that market analysts who say that the web will kill off the need for computer resellers are wrong. Resellers who take up the challenge of the web can in fact become more successful than many of the principals who now supply them. Customers have simple needs, they just want suppliers that are easy to find, understand what they want, and can reliably supply products and services at a fair price. The web has not changed those fundamental needs. It has only accelerated the communications time frame.

Sun Microsystems needs Intel and Microsoft to be successful to fuel the insatiable demand for SPARC servers.

Should Sun Microsystems make its own brand of "Intel Inside®" PC's? Sun could become a successful PC supplier a lot more easily than you might think... But does this make sense from a strategic business point of view?

For large systems, Solaris on SPARC will continue to be a better choice than NT for many years. These are the real reasons why...

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Next month's View from the Hill will suggest:- Sun Microsystems needs Intel and Microsoft to be successful to fuel the insatiable demand for SPARC servers.

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