Rampage 66

Time to Embrace Your Enemy?

When my family moved three years ago, we bought a new fridge from Home Depot. It had all of the features we wanted for the best price—about $100 less than Lowe's or Sears, as I recall—and it was scheduled to arrive the day after our move-in. Only it didn't. When the critical day came, there was no Home Depot delivery. So on top of the usual chaos of moving, I had to endure a flurry of phone calls, all of which entailed sitting on perma-hold, only to be presented in the end with a choice: I could have a model that I didn't want the next day or the one I did want in three days. Needless to say, after factoring in rotten food and restaurant bills, we more than gave back the $100 we'd saved, never mind the intangible cost of stress to the family.

Last year, our friends decided to cover their ground floor in hardwood, and Home Depot was the low bidder. So in came the crew, which ripped out all of the carpet, stripped much of the living room floor down to studs, dropped a small mountain of lumber against one wall, then declared that there was some problem between the sub-flooring and their choice of floorboards. The result was that the bid was thousands of dollars too low, and if our friends wanted their house back they'd have to pay the increase. The ensuing battle went all the way up to Home Depot's regional upper management, which more or less came back with the message "too bad, so sad." Three weeks into the skirmish, Home Depot rolled up a truck, fetched their lumber, and left our friends with no floor. A small, independent contractor cost a bit more than Home Depot's bid and had the job done in a week.

I'm not bringing this up as a polemic against Home Depot. The company has done fine by me in the past, and I'm still willing to buy from it for brainless, non-critical items, such as nails or a tape measure. But I no longer look to the company for any kind of value-add. The same could be said for my travel arrangements. I regularly use Expedia for booking simple, round-trip tickets to major cities, but I'd only use a local, reputable travel agent to get my family through a multi-city vacation or a tour of some exotic, international destination. I once had an agent bail my wife and I out of complex reservation trouble in Belize. I doubt Expedia could have delivered as well.

Which brings us to etail and Newegg. Word is that Newegg is getting serious about targeting SMB resellers, many of which already circumvent distribution in order to get even cheaper pricing through the titanic etailer. You don't get terms. You don't (yet) get a knowledgeable sales rep. You don't get recommended solution strategies, training, or really much of anything—except a cheap price.

Is it OK for a system builder to buy from etail? This is a sticky question for Reseller Advocate, and me in particular, to answer.

I remember all too well, in the days before etail, having to buy CPUs, drives, memory modules, and more through gray marketers who lived and died by the day's faxed price sheet. The reseller shop I worked for marketed itself as a whitebox source with friendly, attentive service. We didn't understand networking. We barely touched on service contracts. We just built whiteboxes and sold primarily on price. And because that was our model, those fax sheets were the basis of our bread and butter. We only resorted to a conventional distributor when customers requested something not available through the gray market.

Etail was instrumental in killing off all three of our locations. The number of customers coming in with etailer print-outs rose each month, the owner was unable to think around the problem, and our little chain died.

At this point, you might expect me to damn etail and maybe throw in mass merchants like Fry's for good measure. "If you buy from etail, you're just helping the enemy!" I might shout from the rooftops. "You're just making them bigger and helping them to eventually steal your customers! The only way you can live is to abandon hardware and become a VAR!"

Ah, well, there's that. But what if you like hardware? What if you take pride in your own whiteboxes and want to leverage your own brand? Is Newegg really the Antichrist?

Of course not. It's OK to buy from etail over distribution sometimes. Distributors have the same problem as resellers. People want stuff cheap, they want value-add, and the gap between those two things grows wider every year. The etail model is the crowbar ripping those two worlds apart. Whether that's a good or bad thing is irrelevant. Personally, I think Short Message Service and instant messaging are the worst travesties to strike the English language since George Bush's teleprompter broke, but sitting around moaning about it won't help. SMS and IM are transformative forces, and they're only getting more popular. The same is true of etail. I'm not saying you should start firing off memos reading, "OMG! I was ROTFL at ur BFF but jus my POV. OK, PCM - TTFN!" Neither am I saying you should build your business on the extra sliver of margin you can get through purchasing from etail. I'm saying that, like SMS and IM, you have to be smart enough to apply things in context.

In the case of hardware, the context comes down to defining your value proposition. The fatal flaw at my old reseller shop was that our value proposition relied on two things: pricing and tech service. Everyone from Newegg to Dell had us beat on pricing, and trying to market an intangible like friendly, knowledgeable tech service when we had no real advertising strategy was futile. In retrospect, we could have done a better job at marketing our service, but the owner always saw it as secondary behind pricing and devoted his attention accordingly. Similarly, he never considered trying to embrace newer sources, such as etail, and using them to his own advantage.

What is your value proposition? You know Home Depot's slogan: "You can do it. We can help." Perhaps the mistake that my friends and I made was in assuming that this implied a corollary: "We can help by doing it for you." Clearly, that idea is not part of Home Depot's value proposition. Rather, Home Depot's slogan/value proposition essentially states: "We help by selling more or less every part known to man. Then you're on your own." That's not an inherently bad statement; people need parts. But sometimes they need more than that.

You need to define a successful value proposition for your business and then deliver on it. If you're going to beat the tier-ones on PC pricing, then by all means—buy from etail if it's cheaper than distribution. But also look for bulk deals and programs through distribution that can beat etail. If your value is expertise and service, especially in rising specialty areas, you're probably going to need relationships with vendors and their educational programs, many of which flow through distribution. No disty is going to go out of its way to help you if most of your purchasing happens through etail.

Also remember that everything changes. If you pick Brand X as your network gear vendor of choice because of its excellent customer support—which reflects your own shop's value proposition based on customer support—and Brand X one day decides to shift its service department to an outsourced company on some remote subcontinent, then it may be time to reevaluate things. Either you're going to swap brands or your value proposition is going to change.

But you must have a value proposition with which you can compete and succeed. Newegg found one, and as the company tries to expand into the channel, it will do so on the basis of that proposition. You might recall that Dell tried to expand into the channel with a different value proposition than the one it offered to end-users and failed.

That said, you have to adapt your value proposition to changing circumstances and use whatever tools are available to make that concept work, whether it means getting more involved with disty programs or buying more from etail. Always keep an open mind, experiment, and stay ahead of the curve. Whatever it takes...IMHO.