No Hardware Vendor Offers the Kinds of Services Sought by Large Companies

E-business is taking root faster than many people ever thought possible, and it's raising eyebrows in places where people least expected it to hit.

E-business is taking root faster than many people ever thought possible, and its raising eyebrows in places where people least expected it to hit.

Consider what happened at Toshiba America Information Systems, for example. The company recently won a major contract from a Fortune 500 company for 20,000 notebook computers. But the customer also demanded that Toshiba play prime contractor on that deal, pulling together a raft of services including help-desk management, configuration testing across 300 different applications, global financing, network management and a Windows 2000 transition plan, among others.

The customer was looking for a total solution. But except for IBM, and to a lesser extent Compaq and Hewlett-Packard, no hardware vendor is in a position to offer the kinds of services being sought by large customers.

Toshiba and its closest rival, Dell, have never been put in this kind of role before. Theyre being called upon to manage a long list of services theyve never provided. And just to make matters worse, all of these vendors are getting battered on hardware pricing because almost all major hardware vendors made a point last year of opening up pricing and availability information via the Internet to their largest customers.

That means they cant secure orders on promises of availability, because those customers have access to the same information as they do internally. Moreover, considering demand forecasting has always been more luck than science, you can expect to find a ready supply of aspirin at these companies at the close of each quarter. But even on the off-chance that vendors do forecast accurately, the only concrete piece out of the whole desktop contract that large customers can put their finger on is product pricing, and thats where they call out their purchasing managers to dicker over nickels and dimes.

The picture gets even uglier—yes, it is possible—when you consider how hardware vendors split their sales. Most of their volume comes from selling direct, through retail or over the Internet. But the majority of their costs come from managing relationships through indirect selling. In short, theyre spending more money on partners of all sorts than on selling direct, and getting fewer sales through these partners as a percentage of total sales.

At the same time, most solutions providers are less enthralled with selling hardware than ever before because margins continue to get squeezed. Its now like trying to suck water out of a rock, and most companies have gotten that message loud and clear and have shifted their model heavily into services. The clearest sign is what happened at Ingram Micros recent VentureTech gathering in Chicago earlier this month. For the first time, no one asked about pricing and availability.

How this all shakes out on the vendor front is anyones guess. My opinion is that there will be more consolidation, particularly among second- and third-tier players in every commodity market.

But looking past all of that, one thing is becoming very obvious: E-business is taking root in this industry at the same time as its taking root in corporate America. Its time to figure out which pieces have longevity and which ones dont, and then model your own business and strategies accordingly.