Despite the success of the direct sales model, customer relationships and speed of solution delivery—in other words, responsiveness—continue to be a strong differentiator for many companies. The role of content-management and order-management vendors will grow during the coming year, as the XML implementations they deliver provide for more flexibility in handling information and financial transactions throughout a distribution channel.
Louis Columbus is the author of more than 40 articles and a dozen books on the Internet, e-commerce, and computing topics. His latest book is Realizing e-Business with Application Service Providers (Sams, 2000, ISBN 0-67232-053-3).
The growing popularity of the Internet has developed the corresponding adoption of the direct sales model as the best of all approaches for creating and holding onto relationships with customers. The direct model's metrics of success—including inventory turns, velocities of transactions, and the focus on customer knowledge—have made some companies challenge the assumption that they needed to have a multi-tier distribution channel in the first place.
Focusing on how distribution-channel members contribute to the sales process and to customer satisfaction levels, companies are attempting to replicate Dell Computer Corporation's much-heralded success with the direct model for personal computers and servers. What's interesting about the Dell approach to direct sales is that the information technology that's the basis for Dell's success actually serves to replicate the value delivered by a distribution channel. Ironically, many value-added resellers (VARs) and system integrators sell more Dell systems than competitive brands (such as Compaq) to the Fortune 1,000. The fact is that Dell leverages technology to get the immediacy of customer feedback, and focuses on the voice of the customer in the quality assurance process. Founder and CEO Michael Dell, for example, occasionally spends evenings reading Usenet postings specific to customers' quality and service experiences with his company. The corporation he heads has taken an aggressive, proactive stance to managing information, making responsiveness possible. The channel strategy becomes nearly secondary to the issue of gathering customer needs and synchronizing product direction with what's seen in the market. To be sure, Dell has stumbled recently, as the PC industry slows in revenue and unit shipment terms, yet Dell focuses on using e-business strategies to ensure high levels of responsiveness both in product direction and in customer experience.
Responsiveness and agility are the strengths of direct marketers, but many of the Fortune 1,000 are striving to add to these strengths the widely publicized levels of efficiency of Dell, Gateway, and others. System integrators—companies specializing in providing comprehensive technical expertise for Fortune 1,000 companies—are playing an increasingly important role for many of these companies. The system integrator is a member of a distribution channel that adds value by knowing the contacts in companies, their technology needs, and the timeframes for implementation. Clearly, system integrators are crucial for the success of companies that develop more specialized, more technologically advanced products.
Channel Management Enters the Industry
The metrics associated with the direct model and the increasingly sophisticated nature of products are driving the development of Web-based applications for managing the dynamics of the electronic distribution channel. Companies that are developing applications aimed specifically at this market need comprise the channel-management arena of the e-business industry. Companies in this arena include iMediation, InfoNow, NetVendor, Patkai, Starbase, and Zmarket. Each of these companies has a unique approach to grappling with the challenge of making information exchange more efficient both up and down the distribution channel. Clearly, companies with multi-layered distribution strategies are grappling with the challenges and market dynamics illustrated in the following sections.
Timely Delivery of Applications and Content
The biggest obstacle to companies who have existing multi-tier distribution channels is delivering new and accurate information to the field. It's very common for the world's largest companies to announce products and then take more than a month to get the training and word out on the product to the point of sale and from there to the end user. Given the short product lifecycles (disk-drive product lifecycles average 40 weeks!), the urgency of getting information distributed as quickly and accurately as possible is tantamount to a product's success. There are exciting new developments in this area where application and content delivery will be in real-time, tailored to the needs of those working at the point of sale.
Reliance on XML
Without question, the XML standard is quickly becoming the glue that holds together the components comprising channel-management applications. XML is used extensively in the iMediation iChannel suite, for example. XML is one of the building blocks of the more robust channel-management applications.
Metrics Mean Everything ("Whatever gets measured, gets better.")
The attractiveness of the direct model is in the results it delivers. The metrics of a successful channel include return on invested capital (ROIC), velocities of transactions, inventory turns, and the customer satisfaction levels that customers report back to companies. The most often-requested development addition to channel-management applications is metrics that can give companies the ability to measure their results in serving customers. The channel-management area is going to have some of the most advanced metrics in e-business within the coming six months.
Private Trading Exchanges Emerge as the Winner
The longstanding debate and fascination with consortiums and public trading exchanges will subside over time as private trading exchanges become the dominant approach to handling the coordination of order management, content management, personalization, and customer relationship management (often referred to as CRM) applications. It's clear that private trading exchanges will be the dominant delivery framework for all sell-side e-business applications. The focus on driving down the costs per transaction is particularly relevant with regard to using private trading exchanges in the context of a multi-member distribution strategy. A final note on private trading exchanges: Dell's commanding e-commerce revenue figure of nearly $1 billion per year is 75% attributable to their ability to quickly deploy private, secure trading exchanges of Dell products on behalf of procurement departments in Fortune 1,000 companies, and with many of the world's leading government and education agencies. Dell calls these stealth sites, since they're invisible to anyone but the employees of the company. Today, stealth sites are even more robust in functionality and offerings than many of the emerging private trading exchanges.
Acquisitions and Alliances Everywhere
The flurry of acquisitions and alliances show several interesting trends in the market. First, system integrators are increasingly seen as crucial to the development of the channel-management and order-management strategies of the Fortune 1,000 companies. Further, companies such as SAP have a strong alliance with a customer base that appreciates and uses metrics. As a result, SAP is finding the development of partnerships to be crucial for growth. There is also the issue of acquisitions, which can transform companies from a single, vertical application focus to a broader one. Starbase is masterful at growing its own sales channel and adding functionality to its existing products. With two recent acquisitions, Starbase is quickly entering the content-management and channel-management market arena. Starbase's focus and strength on many-to-many handling of content delivery is a competitive strength in the emerging private trading exchange arena of the market as well. Companies partnering with and acquiring one another to deliver higher levels of value to their shared customers stand the best chance of making the new company grow.
Scalability Is Now!
Integral to each of the content-management architectures of the companies mentioned in this article is the ability to quickly deliver content and sometimes applications, at a moment's notice, on a global scale. The fact that scalability is crucial points to the need of any company considering content-management applications to use the same metrics associated with selecting a hosting partner or even an application service provider (ASP).
Delivery Focus Varies by Provider
Prior to the market correction in April, 2000, on capital markets, many companies focused all their efforts on promoting their business model as delivering the efficiency and value of the application service provider model. Many investors, including Credit Suisse First Boston, pushed back—asking what applications were delivered via this approach, and their value. As a result of both the criticality of the investment community and the fact that a delivery model does not in and of itself make a business case, the ASP model is finding a different use: It's now a delivery model for content-management and channel-management vendors. Companies mentioned in this article are using the ASP model to deliver their applications globally. In addition, many of these companies are using server-based applications, mostly targeting Microsoft's Windows NT/2000 and Sun Microsystem's Solaris UNIX operating systems. The bottom line here is that content-management and channel-management vendors are making the delivery of their applications as seamless as possible to the existing processes of their customers. It's important to note that many of these channel-management vendors show less than 10% of their revenues from a pure-play ASP model, showing that the delivery aspects of this very publicized approach are just one part of the total solution that Fortune 1,000 companies look for in a technology partner.