IDC: Online Sales Moving 40% of U.S. Consumer PCs

Close to 40 percent of all U.S. consumer PC sales will be made online in 2004, according to a new report from International Data Corp.

(IDC) released Wednesday.

The report, titled "PCs and eCommerce: Forecast and Analysis of Online U.S.

Consumer PC Sales," noted that only 8 percent, or less than 1.4 million, PCs currently sold to U.S. consumers were sold via the Internet. But in 2004, that number will have jumped to 9.3 million PCs sold online, IDC said in a statement describing the report.

Contributing to the rise in online PC purchases are targeted marketing efforts, convenience, growing comfort with e-commerce and price, IDC said. The current penetration of PCs in U.S. homes -- and the rapid rise of homes connecting to the Internet -- also boost online PC sales, according to IDC. Estimates from the Framingham, Massachusetts-based company peg the number of U.S. homes with at least one PC at 50 percent, and indicate that almost 36 percent of U.S. homes have Internet access.

"The advantages (of buying PCs online) vary by consumer class," Keith Waryas, research manager, e-commerce at IDC and the author of the report, said in an interview Thursday. "Experienced users buying online can do custom configurations ... hop from vendor to vendor ... Dell's custom configurations cater to the high-end user," he added. The value for the experienced consumer, Waryas said, is in selection, service such as online technical support, and pricing.

Price alone, however, is not enough to lure consumers into buying on the Internet, according to IDC, which is owned by International Data Group, the parent company of IDG News Service. The "nondollar" value, which includes increased confidence in the purchase and accessible service, will keep traditional brick-and-mortar stores in competition with Internet computer retailers, according to IDC, which expects to see the online computer shopping experience become more interactive.

Novice users may not reap these benefits as easily, according to Waryas. The novice user, he said, "can surf multiple e-tailers, but the level of sales support is not what it is at a brick-and-mortar store."

Within the next few years, though, that will start to change as online stores make more use of programs that ask consumers questions about what they will use computers for and what features they would like beyond focusing on memory and modems. That information then can be used to direct consumers to computer systems that will be most useful to them.

An emergence of bundling, as found in brick-and-mortar stores, will be seen at e-tailers, Waryas said. For example, if a customer indicated that the computer will be used for a lot of digital photography, the bundle might include a digital camera and a high-quality photo printer.

"The problem that I see buying online, for a novice consumer, is that it can be confusing," Waryas said. He cited Dell Computer Corp.'s model, which asks for the type of modem, monitor and memory the consumer would want. "A novice consumer can be slightly intimidated to the point where (the consumer) won't want to deal with it; it can be easier to walk into the store," Waryas said.

Physical presence is a huge advantage for the traditional brick-and-mortar retailer, according to Waryas.

"The majority of people are not buying anything online; we've just seen 50 percent PC penetration this year. (Brick-and-mortar) is a familiar interface; people have bought there before, and it lends an air of legitimacy, especially with the recent dot-com problems," he added.

Vendors cannot rely on direct sales, IDC said in the report. Instead, they should seek out Internet channel partners, which will be the main route for purchases and are better suited than manufacturers to handle sales and shipping, as well as economically selling complete systems, IDC added.

In addition, Waryas said, "if there is a direct relationship between the customer and the vendor, it allows the vendor to build brand equity."

There has been a lot of price-based competition in computer sales, but there will be more of a focus on the total value of sales, Waryas added. For example, technical support will become more of an online service, tying the customer to where the PC was purchased, but the vendors "still need to have an 800 number" when the PC won't boot up.

The most successful PC sellers, IDC found, will offer both Internet and brick-and-mortar outlets (click-and-mortar), but only if thoroughly integrated. To stay competitive, online sellers will need to incorporate product bundling, extended warranty and support options, affiliate marketing programs, and possibly even leasing options, according to IDC.

"From a vendor standpoint, it's extremely difficult," Waryas said. CompUSA Inc., for example, has not shown success in their cozone.com effort, but leveraging their brand name for their online PC sales offers a distinct advantage over a purely online retailer, he added. "Because of the physical presence, they're not cannibalizing their own market," he said.

Worldwide online PC sales will not be as simple, according to Waryas. For starters, the U.S. has the highest penetration of PCs, with Europe and Asia catching up. The other main issue is of credit card penetration, of which the U.S. has an extremely high rate, which is not true of the rest of the world, Waryas said. Credit cards are, "right now, one of the few ways an online retailer can charge" customers, he added. "We'll have to wait and see."

IDC, in Framingham, Massachusetts, can be reached at +1-508-872-8200 or at http://www.idc.com/.

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