Chris Barton: Middlemen claiming net niche

Why, when internet and technology companies are crashing and burning all around, would anyone want to start an internet company? Especially one where the only source of revenue comes through selling over the web?

Because the business model makes sense. At least that's the view of IT industry oldtimer Clive Glover, who is combining his marketing and management skills with two generation Xers - Simon Scott and Kelly Raines.

The result is www.acquire.co.nz - a website expected to go live shortly that will sell computer software and hardware to both businesses and consumers. In other words, a web reseller, an internet dealer. Or, to continue the IT jargon, an e-channel.

What is not right with this picture? Well, it goes against a tenet of the internet world - that the web medium, because it can link wholesalers and distributors directly with the consumer, will cut out the middleman. Dis-intermediation in webspeak.

It's the business model of direct sales - made famous by Dell Computer and resisted furiously by Compaq, Hewlett-Packard and others who all dabble with direct sales but still live by feeding the all important "channel" - the reseller.

Lately, it seems both models can happily coexist. Dell, despite a shaky share price, is still selling an awful lot of PCs. So too, even in these tech wreck times, are Compaq and Hewlett-Packard - both of which are often heard to say, "you don't need to be direct to beat direct."

Which suggests the humble middleman's demise has been grossly exaggerated.

But the boys at Acquire are bringing a new - some would say virtual - dimension to the middleman's role. At one level it's very like the direct model - using an internet site to link suppliers with customers.

But what is different is that it's the reseller - in this case Acquire - which is combining seven suppliers' inventory on the one site.

Customers can choose, just as they would in a reseller's shop, from a range of products. But in this case the range is huge - 70,000 lines and 360 brands - and it's online 24 hours a day, seven days a week.

What's clever is that inventory information is downloaded from the suppliers every day and goods, once bought, are sent directly from the suppliers - meaning Acquire doesn't have to hold or handle any stock.

The electronic process drives cost out of the supply chain - a lesson learned from one of the first to see the light, internet plumbing giant Cisco.

Lower costs mean Acquire has more room than traditional resellers to move on its supplier margins to offer competitive prices to customers.

It also means more efficiency as individual businesses with a commitment to a set level of buying can enter the site and find prices set to their commercial discount.

What is more, for those with the knowhow, the whole setup can be very cheap - a relatively small outlay on computer servers and software, outsourcing the hosting and security of its website, and running day-to-day maintenance and telephone operations - in this case - from Mr Scott's Greenlane home.

The concept isn't entirely new. Neil Taylor pioneered the idea in April 1999 with Networks Direct, run from his Kohimarama home.

The site had $1.5 million in sales in its first year from 5000 customers.

That persuaded Mr Taylor to expand into bigger offices and a larger site, Supplyzone, last October - selling not just computer equipment, but stationery, office furniture, mobile phones, alcohol and food.

Mr Scott and Mr Raines are well aware of the competition. Both are former employees of Mr Taylor. But both believe they can take the virtual reseller concept to new heights - Mr Scott through his customer service experience, which includes stints at OTC partners, Wang Express and Corporate Express, and Mr Raines through his website building expertise, which includes experience launching ihug's e-commerce initiatives.

Put that together with Mr Glover's 28 years in the industry, which includes running Dataset Computer Supplies, and the trio, who have equal shareholding in the new company, reckon they have a winning formula.

Time will tell. Meanwhile, SupplyZone marches on - with $1 million in sales since October and new virtual reseller opportunities emerging.

Mr Taylor has just signed with Interserve to provide online sales for its 400 technicians who service a range of equipment, including air-conditioning, electrical cabling and PABXs.

He has also done a deal to become a Hewlett-Packard authorised e-business partner to run a New Zealand "shop in shop" online store.

Which goes to show that the middleman, far from being virtually dead, is very much virtually alive.


BOOKMARKS


Most ingenious: Gallery of CSS Descramblers

When the software code known as DeCSS made its net debut about two years ago, the movie industry went into a panic.

With good reason - the program can break the encryption code protecting DVD movies from being copied.

Bring on the legal guns. Last August the movie industry won a case banning a hacker site called 2600.com from posting DeCSS or even linking to other sites that posted it.

But you can't keep a good programmer down - or expect them to ignore such an attack on their right to free expression.

Enter David Touretzky, a computer-science professor at Carnegie Mellon, whose web gallery shows some extraordinary geek creativity - like a haiku poem explaining the DeCSS algorithm, a digital movie where the DeCSS code scrolls off into space and the code is transformed into music by assigning each letter, number and symbol its own musical note. A catchy tune, but difficult to dance to.

Advisory: The web will always finds a way.

Picking winners: Worldly Investors

"It's become unmanly to buy stocks unless they have hit their absolute bottom. Guess what? You'll never do it - you're more likely to win the Powerball." So says worldlyinvestor.com columnist Bob Beaty.

This is a great site to visit if you are looking to snap up some bargains in the wake of the technology stock rout.

Look at Cisco, for example. The shares are trading at roughly $US14, which gives a projected price/earnings ratio of about 28 times - still a tad high by current market standards, says Mr Beaty.

"If the shares dropped to $10, and those earnings numbers weren't significantly dropped again, that P/E would be more like 20 times. It has been a number of years - 1990, in fact - since bellwether Cisco was available at this valuation."

Advisory: For those who like gambling.

chris_barton@nzherald.co.nz

* Peter Sinclair is on leave.

Links

Acquire

Dell

Supplyzone

Gallery of CSS Descramblers

Worldly Investor