NW100: Put your money where your modem is

Electronic commerce is fast becoming a make-it-or-break-it economy, and network vendors are in the lead. Never has a sales strategy been such a money saver, while boosting customer satisfaction and corporate revenue.

"If a network company doesn't do e-commerce today, it won't compete in the long run," said Mike Putnam, senior analyst of business trade and services for Forrester Research.

The numbers prove the point. Cisco, at the forefront of e-commerce, chalks up three-quarters of its orders via the Web. That's a sales rate of about $US8 billion a year, or $US22 million a day.

By shifting the bulk of its sales to the Internet, Cisco has saved a whopping $US320 million since 1995: $US250 million by distributing 90 per cent of Cisco software online; $US40 million by publishing electronically; and $US30 million by using fewer service representatives per customer.

Cisco is not alone. 3Com garners about $US2 billion, or 30 per cent of its revenue, from e-commerce sales, and it wants to increase the percentage to 80 per cent by year end. 3Com executives estimate e-commerce boosts the productivity of its sales organisation by 25 per cent to 30 per cent.

For Cabletron, an electronic order saves 96 cents on every dollar in processing costs. Compaq's successful Prosignia PC e-commerce sales -- which had been averaging $US1 million a day as of March -- have led the company to launch a new division, Compaq.com, to consolidate and expand its efforts. The company has declared it will become an online market share leader by 2001.

Overall, Forrester predicts business-to-business sales of computing and electronics equipment will soar in the next four years -- increasing from about $US50 billion in orders this year to more than $US395 billion by 2003.

Customers have clearly spoken. When e-commerce is offered, it is typically the sales method of choice for network hardware. Customers who purchase online say they save money through price comparisons, vendor discounts for buying online and by getting what they want the first time.

"You specify exactly what you want -- no communication problems. So, in some aspects I actually trust using the Net to make my purchase rather than direct contact," said Robert Hoonjan, manager of Customer Integration Americas for SITA.

But little network hardware is sold to end users through vendors' Web sites, despite the benefits.

Even for Cisco, roughly half of online sales come from resellers -- not direct from end users. Customers who purchase from the Cisco site must qualify in advance for the privilege, said Scott McMahan, senior manager of Internet business solutions for Cisco.

Exactly what is the electronic deal here? The answer depends on how a vendor plans to balance e-commerce with its current sales structure. For a direct-sales company such as Dell, selling through a Web site is a no-brainer. But the issue is more complex for companies that use reseller channels.

E-commerce reverses the sales process. Rather than customers coming to a vendor through a reseller's sales efforts, the customer is driven directly to the vendor by brand-name recognition.

Familiar brand names give users a sense of security about the vendor from which they are making purchases, Hoonjan explained.

Vendors with reseller channels then must hand off the customer to a reseller. The issue is politically sticky. Big network vendors have thousands of resellers. Which reseller gets the sale?

E-commerce sales are also technologically sticky. Until Extensible Markup Language came along, there was no way to begin a transaction on one site: the vendor's, and have it completed at another: the reseller's, said David Atakins, manager of e-sales at 3Com. He is currently updating the 3Com site to provide this function.

There are other sticking points for e-commerce. Manufacturers can't only sell direct via the Web because not every network manager is buying all his products electronically. Also, a lot of managers still rely on a reseller's configuration and integration expertise. Then there's the fact that direct sales models are historically less efficient and don't scale as well as the multitier reseller model, said Geoffrey Bock, senior consultant for Patricia Seybold Group.

In the long run, how well a vendor masters e-commerce intricacies will equal how well it grows the bottom line.

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