The golden promise of the consumer market and the continued challenge for distributors and resellers to provide more customised service at less cost to compete with direct marketers were some of the themes running through keynote speeches at the recent EuroChannels 1994 in Paris. Success in the consumer market is essential for us to achieve our goal to be number one in the world, said Andreas Barth, senior vice-president and general manager for Europe, Middle East & Africa, Compaq Computer Europe. We are still primarily a business personal computer company, but our goal is to expand our core business with notebooks and so forth and to enter successfully into the consumer business. It has already made a good start.

Cultural

Compaq was the second-largest consumer personal computer vendor in Europe in the second quarter of this year with a 9.5% share, behind Vobis Mikrocomputer AG’s Highscreen, and followed by Germany’s Escom AG in third place. For the whole of 1994, Compaq expects to ship 2.4m units to Europe’s consumer market, for revenues of approximately $3,400m. That should climb to 10m units and $8 billion in revenue by the year 2000. There are about the same number of households in Europe as in the US, but the US has three times the penetration, which is sometimes for cultural reasons. Predictions are that penetration will reach 50% in Europe by the year 2000, Barth said. Bernard Vergnes, president of Microsoft Europe, too, sounded the consumer market bell. The largest potential market is the personal computer at home, if you look at who is buying now, but the US is two years ahead of Europe in installation rate. We need tointegrate the machines better with software. Apple’s advantage is there in that they’ve always had better integrated machines, he said. The consumer and the small-to medium-sized organisations – grusomely dubbed SMORGS – markets represent the biggest areas of growth for resellers, said Mort Rosenthal, chairman and chief executive of the personal computer software and systems integration specialist Corporate Software Inc. SMORGS have many of the same technology requirements as large organisations, but they have much fewer resources; it’s a largely untapped market, he asserted.Consumer demand is exploding, and critical mass is near. Rosenthal was likely referring more to the North American consumer market, since the European consumer market has yet to be hit by any explosion. A survey of households in the UK, France and Germany by US-based research firm Intelliquest Inc, showed only 5% that bought a personal computer in the last 12 months, said Michael Gale, director of international research. Of those, 32% were replacement buyers, 52% were first-time buyers and 16% were purchasing an additional machine, he said. Growth predictions for the private market in Europe from market research firms, including Dataquest Europe, Gfk Market Services in Paris and Inteco, average between 15% and 20%. In the meantime, Barth said, the European home market in 1993 was segmented into 25% personal computer enthusiast, 35% work at home, 40% family use.

By Marsha Johnston

The factors driving the acceptance of a personal computer in the home are multimedia for education and leisure (The single most important factor); communications, for applications such as telecommuting and facsimile; multi-functional hardware, including CD ROM, facsimile, television and video; and consumer perception. A big factor in improving consumer perception, Barth said, is the pester power of kids who push their parents to buy a personal computer. Europe must see a drop in the entry-level price point and a greater availability of localised software titles in order to increase home personal computer market growth, Barth said. Microsoft’s Vergnes contends that the European consumer personal computer market should reach a psychological price point at Christmas of less than UKP1,000 or less than FFr10,000F at which a family can decide a personal computer is affordable. Plus, the technology is at a point where they think it has

some value. Between 80% and 90% of Compaq’s machines in Europe are sold with CD ROM readers, Barth said. It is little wonder then, that International Data Corp forecasts CD ROM drive shipments in western Europe doubling, from approximately 3.5m units this year to just over 7m in 1996. IntelliQuest’s survey showed that the highest percentage of CD ROM-equipped home personal computer buyers were in France (18%), followed by the UK (14%) and Germany (6%). Despite that growth in CD ROM drive shipments, neither Vergnes nor Rosenthal believes that it is yet the ideal means of software distribution. While admitting that the ability to put several products on one disk could ease distribution loads, Vergnes said the cost structure is not so different that if you put your product on CD ROM, you will suddenly have money to localise your software. Besides, he said, there is an immense installed base of personal computers without CD readers. Until that changes, you will not see software distribution on CD ROM. Rosenthal says simply that distribution of software on CD ROM is not particularly compelling because it is too static. It’s clearly a method for the future.

Challenges

Keynote speakers also noted that the consumer market poses some particular challenges for European product channels. In Europe, the top 25 retailers control 60% of the volume to consumers, with the rest coming from small retailers. There is no room for another level of distributor between the vendor and the retailers, Barth said. To be successful in this market, he said, resellers must provide a choice of three or four brands, a well-trained sales staff, good product presentation, warranties and an aggressive cost structure. Indeed, he said, it is unlikely that any retailer with a cost structure above 50% will be able to compete in the consumer personal computer market. The consumer market is a difficult one for a reseller, said Rosenthal, because customers are usually very demanding, require a huge selection and have received only poor pre-sales marketing, so they don’t really know what they want or need. In any case, said Vergnes, it must be remembered that there really is no monolithic European home personal computer market, as such. In each country market, you have as much complexity as in the entire US. Multiply that factor of complexity by 12, plus the added complexity of a myriad of regulatory situations. The mosaic of cultures and languages will not change, so anything to be achieved will be longer term and more complex in Europe than in the US.