Dell Computer Corp. executive Bill Morris recalls attending a conference earlier this year where an industry analyst forecast online sales of computer products could reach $8 billion by 2000.
"I stood up and said, `If Dell Online [alone] doesn't do that much, we're out of a job,' "says Mr. Morris, director of content and marketing for Dell Online.
Dell, with revenue last year of $12 billion, now generates Web sales at an annual rate of $2 billion. But the PC industry's hottest player intends online to account for 50% of its rapidly growing sales by the end of 2000.
"The online portion of the company [then] will be as big as the [entire] company is today," says Mr. Morris.
ONLINE TECH SALES BOOMING
If e-commerce is hot, online tech sales are hotter. From consumer software to business computers to enterprise Internet gear, Web sales are booming as customers turn to technology to buy technology.
Here's a look at three winning tech commerce sites, each launched in the third quarter of 1996: Dell, the No. 1 PC seller over the Net; Cisco Systems, the biggest Web seller of network gear; and computershopper.com, a Ziff-Davis site that claims to steer nearly $8 million of orders a week to direct marketers pitching hardware and software.
Dell generates roughly 80% of overall revenue selling to businesses and institutions, with "retail" sales to individuals making up the rest. Dell Online is a different story, with revenue split evenly between businesses and consumers.
Mr. Morris says he expects consumer sales to keep growing. But to reach Dell's online goals, he says, business sales must grow faster. Over time, he expects the online business/consumer split to more closely track Dell's overall business/consumer mix.
"We've just started penetrating business-to-business from an Internet commerce standpoint," he says.
Mr. Morris says Dell Online started with the "low-hanging fruit," targeting consumers and small-business owners who like being able to configure and order a PC online.
The PC maker targeted business and government this year, setting up some 8,000 custom pages that amount to a separate storefront for each of these customers. A business gets its own Dell site, allowing employees to order specified models and computer departments to track data on their inventory of Dell PCs.
Dell now is working on an ambitious plan to connect its Web site with the business systems of large customers. When a new employee joins, say, Boeing Co., a line manager could order a PC from Dell and have the purchase information automatically transmitted to accounts payable, the computer department and other relevant offices inside Boeing.
Dell promotes its URL on literally every piece of marketing communications material it churns out. But Mr. Morris says direct mail and print ads have proven most effective at driving Internet traffic; Web banner ads are a distant third. Grey Interactive, New York, is the interactive agency of record; BBDO Worldwide, New York, and Goldberg Moser O'Neill, San Francisco, handle traditional advertising; Rapp Collins Worldwide, Dallas, handles catalog work.
Mr. Morris acknowledges it's hard to track what percentage of Dell Online business is incremental; he estimates 30% to 40% of online retail sales would have been lost if Dell didn't offer online shopping.
An efficient direct-marketing model has rocketed Dell's overall sales, by some measures catapulting Dell's U.S. sales past No. 1 Compaq Computer Corp. Dell Online allows the company to sell even more efficiently--and, maybe more important, gives Dell a chance to have a continuing relationship by providing Web service and support to its direct customers.
Have a problem with your Dell? Go to the site, plug in your PC code number, and the site reconfigures to reflect only the information applicable to your system. Such efforts, Mr. Morris says, help develop long-term customers and repeat business.
"That develops a relationship, an affinity between you and Dell," Mr. Morris says. "Using the Internet, we get to personalize your experience with Dell."
Cisco Systems generated $3.8 billion in orders over its Web site for the year ended in July, driving 45% of its sales through the Internet. That's just the beginning. Two-thirds of the company's September orders came through Cisco Connection Online. By next July, Cisco intends to take 80% of its orders over the Web.
While Dell now relies on the Web to sell PCs directly to customers, Cisco uses the Web largely to sell networking gear indirectly through resellers.
Chris Sinton, director of Cisco Connection, stresses the site is not intended to be a new sales channel that would create a conflict for resellers, which account for two-thirds of Cisco sales.
"We have no intention of circumventing" resellers, Mr. Sinton says. Instead, the site's primary goal is to improve customer service.
A second goal is to allow the booming maker of Internet routers and hubs to scale its growth while keeping overhead in check. This saves "hundreds of millions of dollars" a year, Mr. Sinton says.
A third point is to make Cisco a model of business practices using Internet technology, building a reputation that will drive more business to Cisco.
What's in it for the customer? Better service and support for technology users, resellers and the non-technical purchasing agents who buy the goods. Seven of 10 Cisco support questions now get handled through the Web. Cisco, meanwhile, promotes to customers how buying on the Web saves time, reduces errors--and gets the product delivered faster.
"We know that our customers are more satisfied when they are able to use the Internet," Mr. Sinton says. "The value that our customers get and the value that Cisco gets is invaluable, and it is a competitive advantage."
Cisco works to promote the Web to purchasing agents and financial managers who do much of the buying. When necessary, it partners with Internet service providers to get such customers onto the Web. To encourage Web sales, Cisco offers frequent flyer miles to customers that increase their use of Cisco Connection.
Cisco Systems now is marketing its e-commerce system. Earlier this year, it set up a division to consult with companies interested in learning how Cisco built its enterprise on the Web.
Says Mr. Sinton: "It's a better way of doing business."
Direct marketers of computers and software have their own Web sites, so why do about 100 of them pay to list goods on computershopper.com?
It's the same logic that's driven them to advertise in Computer Shopper, the bible of mail-order computers, during the past 19 years.
They may do their own catalogs and direct mail, but they also advertise in Computer Shopper.
Direct PC buyers congregate where they can comparison shop, whether in print or on the Web, says Al DiGuido, exec VP of Ziff-Davis'
E-Commerce Group, which includes print, Web and TV versions of Computer Shopper.
Mr. DiGuido says the www.computershopper.com site--known as Computer Shopper NetBuyer till that commerce site merged in August with the magazine's editorial site--delivers some 8 million impressions a month from about 800,000 shoppers.
"We take the retailing mentality," says Mr. DiGuido. "Think about this as a huge mall," with links to online merchants.
The site rejects the click-through, per-impression pricing common on the Web in favor of a model drawn from print, charging set fees from a rate card giving advertisers placement for a specific period.
REVENUE GENERATED VIA ADS
About 100 vendors list a total of 60,000 products in the site's searchable database; a typical supplier pays $3,850 a month to list up to 500 products. If customers like the price, they may place an order with the advertiser over the Web or phone. The site makes its money on advertising and does not take a cut of sales.
While the database for comparison shopping is at the core of computershopper.com, Mr. DiGuido says 75% of ad revenue comes not from database listings, but from banner ads and special ad units.
Compaq Computer Corp., for example, pays about $50,000 a month for a high-profile banner on the opening page that links to a dedicated page where Compaq can showcase its wares. Advertisers also can buy banners in specific product categories; the desktop PC and notebook categories are sold out for the year.
The site is merchandised like a store: Vendors may pay to be featured in weekly specials or put closeout deals in the computershopper.com Basement.
PC makers such as Gateway account for about 40% of the site's advertising; the remainder is split evenly between mail-order resellers, such as CDW Computer Centers, and manufacturers doing point-of-purchase promotions, such as Epson America.
Mr. DiGuido says some vendors early on took issue with a model where they were being asked to pay for advertising with no assurance of getting click-throughs. One of the last to sign on was Dell.
"The vendors are here, they're spending money here," says Mr. DiGuido. "If they are paying higher rates here, which they are, the only reason they're here is because it's working."
Copyright October 1998, Crain Communications Inc.