IBM appears to have done it. Hewlett-Packard and Compaq are desperately trying to get in the game. And Japanese vendors have obviously gone crazy over it. Revolution might be too strong a word but there is definitely a sea change happening in the hardware industry as traditional vendors come to the realisation that the Internet is the way of the future. Lacklustre performances of previously lucrative markets such as semiconductors, the ever reducing margins on bread-and-butter items such as the PC, and the enviable growth rate and capitalisation of dot-com companies has pushed the hardware vendor into the Internet and service space.
But the channel appears to be wary of the moves, with few interested in taking any role in the Internet side of their suppliers' business except to sell the hardware to make up a complete solution or take advantage of the vendors internal Internet initiatives.
But the trend can not be ignored. Japanese companies are the latest to experience the craze with Hitachi's strategy, locally rebranded Aim High, announced recently.
S. Ohtsu, Hitachi's deputy general manager, international planning and development division, said the electronics company planned to allocate $US3 billion to worldwide mergers and acquisitions by 2002, invest substantially in systems integration, outsourcing, Internet and back-end broadcasting,and GSM telecommunications services and increase its global workforce by 7500 people.
The Japanese electrics and electronics company believes it will have tripled its current global profits by 2002.
Mitsubishi also recently formed a new division to drive its development of Internet-related businesses. The Information Network Service Group (INSG) is charged with the creation and control of Internet and telecommunications-related businesses that, in Mitsubishi's mind, have a high-growth potential.
With the establishment of INSG, the company hopes to see Internet-related businesses post sales of more than 500 billion yen ($US4.6 billion) in the 2003 fiscal year. Investment in the company to fiscal 2003 is expected to amount to 100 billion yen.
Mitsubishi already has some businesses in the sector. They include telecommunications networking firm MIND (Mitsubishi Electric Information Network by Digital Technology), Internet service provider Dream Train Internet, telecommunications carrier Pack East, software company Mitsubishi Systemware, maintenance firm Melcom Service and contents provider Meldac.
Earlier, Toshiba announced plans to form a new division to focus on development of mobile Internet-related businesses.
The i-Value Creation company will initially have two divisions, the Web-top Service Division and Media and Content Division. The former will be charged with development of information and portal services, principally for mobile Internet applications, while the latter will oversee the planning and development of in-house content businesses and promote new services that will take advantage of Internet, digital television and other platforms.
So amongst the other challenges the channel has to deal with, such as moving to services, resellers will need to adopt a strategy that takes into account their traditional hardware suppliers' new diversity.
And with businesses and the consumer hungry for Internet solutions, vendors moving into the new era with ties to the old are in a good position to offer total solutions, unless resellers skill up on the Internet or their own unique value add.
"You can either be in broad-based reselling, a niche market or get out altogether," said Michael Calculli, national sales and marketing manager for Hitachi distributor Agate.
Agate itself won't take up the Internet element of Hitachi's business, choosing instead to remain focused on storage solutions. This niche focus will enable the company to welcome the changes sweeping the hardware vendors, rather than fear vendors using their Internet expertise to move too far away from Agate's traditional core competencies.
"If I was a broad-based distributor I would feel threatened by what is happening. IBM and Compaq are targeting the SME sector with Internet solutions and direct sales and that's where a lot of distributors operate," explained Calculli.
Toshiba reseller Axon Computers will also continue to sell hardware rather than move into any Internet solution sales or service capacity. But the Internet solutions company Toshiba will develop will benefit reseller operations, according to marketing coordinator Lisa O'Neill. "This will generate a lot more business for us as we will have a broader market to address, and we can address it much more efficiently if we have access to a good internal B2B site." The vendor pushes the Internet solution and the reseller supplies the building blocks, explained O'Neill.
Calculli is also confident of Agate's position in the new scheme of things. "It could be a threat to us but it is mostly an advantage in terms of getting our product out there to a broader audience."