Changing times require new strategies, and IBM is busily tweaking the way it makes and sells PCs in an effort to increase revenues and profits for itself and for its PC business partners.
By Timothy Prickett Morgan
On June 5, IBM announced that it would being selling its Netfinity PC server line through its direct sales force, the same one that is currently selling AS/400 proprietary and RS/6000 Unix servers. The move by Big Blue to directly push its own PC servers, which could potentially cut into sales among its myriad business partners, was offset by an expansion of the company’s Advanced Fulfillment Initiative, a program that brings IBM’s resellers into its own PC factories so they can quickly and efficiently build systems – mostly desktop machines, not servers – to customer specifications. IBM is, of course, putting the typical spin on the announcements. IBM firmly believes that our business partners provide the best Netfinity solutions for the majority of customers, explains David Thomas, senior vice president in charge of the IBM Personal Systems Group. However, we are also determined to satisfy the needs of those customers who consider a direct relationship with their server vendor to be critical. While this is certainly true, IBM’s main goal is to increase its own PC server revenues and profits and it will do so by making its enterprise customers happy with lower prices – no more middle man to take 15% or 16% anymore. (In some cases, oddly enough, IBM business partners will actually do the final assembly on the Netfinities that IBM sells. This makes sense, since IBM’s business partners, especially those participating in the AFI program, can build and configure PCs for less than IBM itself.) IBM will further increase its revenues by pushing its own PC support services into these direct accounts, giving Netfinity servers the same status within the IBM organization and its product catalog as S/390, AS/400 and RS/6000 servers.
Neglected child
IBM accomplishes a few other goals by going direct with Netfinities among its enterprise customers. For one thing, the Netfinity line looks less like an adopted (and somewhat neglected) child compared to its aforementioned siblings. Just like with RS/6000s, AS/400s and S/390s, big customers get direct sales and support for Netfinities from IBM, while smaller customers go through the reseller channel for sales and, sometimes, for support. IBM is going in the opposite direction with the AS/400 and S/390 lines. In 1994, 45% of AS/400 sales came through IBM’s sales staff, 50% from business partners; IBM hopes that upwards of 65% of its AS/400 sales will go through BPs next year, with IBM sales reps only accounting for about 20% (IBM believes that the web and other indirect sales tools can account for the other 15%). IBM has just begun creating a business partner channel for its low-end S/390 Multiprise line of CMOS mainframes, and it’s too early to tell how well that will work. Ultimately, if the Netfinity program works out like the AS/400 marketing scheme, IBM’s sales reps could account for 25% of the company’s total PC server sales. Equally important to revenue growth is the fact that Netfinity Direct just makes things easier for IBM. Most of IBM’s big PC customers either have or have had another IBM system as their primary host in the past; the IBM sales team is already there, and under the new unified sales & marketing teams IBM has put together over the past few months, these reps are well equipped to sell PC servers as well as AS/400s, RS/6000s or even S/390s. Selling Netfinities to these customers is an easy sell for IBM, but perhaps not for one of its business partners, who may not be able to convince IBM’s server customers that they can offer the same level of service and support as Big Blue itself. The burden of making the hard sells will go to IBM’s PC business partners, who must now focus on getting into new, non-IBM accounts. Either that or become Compaq dealers. (The situation isn’t any better for Compaq dealers, though. Compaq has much worse PC inventory woes than IBM, but it will be able to hide the worst of its errors underneath the Compaq-DEC merger deal next week. Look for big write-offs.) IBM may taketh away with its Netfinity Direct initiative, but it also giveth. Under the expansion of the AFI program, four of IBM’s biggest PC business partners – Ingram Micro, MicroAge, Inacom and Tech Data – would become master distributors who would build computers for IBM, themselves and other smaller business partners. The idea is that IBM and its business partners will push hard to sell more servers – IBM will strive to get all those Compaq, Dell, HP and Gateway servers out of IBM’s core 10,000 accounts, while its partners will push Netfinities to the many tens of millions of small and medium businesses – and thereby rake in more money for everyone. The companies that stand to lose the most revenue from IBM’s Netfinity Direct are also, not surprisingly, the ones who will make money building IBM’s PCs.
