Industry history helps success

There are no coincidences in life. In reality, there are merely periods where we just don’t see the connections between one event and another. But when I saw the recent story about IBM drastically cutting back on the number of retail outlets it will support in Canada – on the same day that an IBM4BIZ brochure about IBM’s online store was dropped in my mailbox – it was not hard to see the connection.

This was no coincidence. IBM obviously decided some time ago that it was going to phase out of the retail computer business in Canada – and the arrival of the brochure on the day that its retail cutbacks were made public was merely further evidence of the severe challenges that face manufacturers who want to be part of the Canadian computer distribution industry.

Those challenges befell Gateway last year when its distinctive “cow motif” Canadian retail stores were sent out to pasture. The overhead – in staff, retail space and required local advertising – appeared to have been too much for a company that was used to selling direct.

In a perverse way, however, all of this may be good news for long-time computer industry resellers and retailers. It may mean that the long-feared process of “dis-intermediation” – wherein manufacturers choose to deal directly with end users and drastically reduce the role of the channel – may be in the decline.

If, indeed, that turns out to be the case, it would be entirely in keeping with other technological evolutions in the past. In the late 1980s, for example, legions of people decided that they would become publishers largely because the advent of desktop publishing suddenly made the barriers to market entry far lower. Merely wanting to be publishers – and having the rudimentary tools needed to create publications – was not enough to allow many of these would-be magnates to survive.

What happened, of course, is while new magazines and newspapers flooded the market – many of them were poorly designed, ill-considered and did not have much of a strong financial plan behind them – and, as a result, will eventually be driven to extinction by market forces.

And the majority of the companies left standing were those with a long history in the industry. They had undoubtedly benefited from the bold experimentation of the new entrants – and then introduced the new technology themselves once they learned from the experience of the failed start-ups.

You could apply the lessons of that experience to what is happening on the Canadian channel landscape today. While it is fair to say that companies such as IBM and Gateway are not exactly start-ups and, in fact, IBM has enjoyed a retail presence in many markets for decades, they were both looking to dis-intermediate the existing channel to a lesser or greater extent.

The real news is that IBM has been required to stage something of a strategic retreat from “real world” retail operations. Alongside that retreat many of the hundreds of online electronics and computer retailers that sprang into life over the last four years have either been reduced to bare bones operations or gone under.

The message to long-time participants in the industry is clear: the strong and the experienced will survive. While the crazy prices, cut-throat competition and razor-thin margins undoubtedly made life difficult for a while, they were useful tools in re-educating customers in the notion that you get what you pay for. And if you are paying below-market prices for equipment, you’ll see a lower level of service and a lower chance of the company with which you are doing business being around when you need help.

Of course, there will still be some customers who don’t care about any of those issues. They just want the highest specification brand-name equipment at the lowest prices. And someone will always sell it to them.

But that’s kind of like saying that all investors should invest in high-risk penny stocks because a few wily and experienced market gurus have become rich by doing so. If you really, really know what you are doing, there is a chance you’ll strike it big.

For most people, however, the risks outweigh the potential profit of speculative investing and they keep their money in safer places (at least since the stock market “tech wreck” of 2000-2001). And so it is with strategic investments in technology hardware, software and services.

It is likely that many of the new entrants in the market have found it tough simply because people want to stay with names that they know, trust and understand – and they want to have choice. For those reasons, online stores from little-known entities – and even large, real-world stores from companies that don’t have a local retail history (with the possible exception of operations such as Wal-Mart) – have had a tough time.

Wheelwright is a freelance journalist, author, sometime broadcaster and interactive media industry executive. He most recently served as editorial director of StockHouse Media Corp.