Big Blue Seeks Big Chunk of Online PC Sales

Computer titan IBM is reportedly gearing up for an all out e-commerce initiative in which Big Blue will directly sell its entire PC product line over the Internet. According to media sources, the company will set up a new Web site in May, code-named “Project Odyssey,” from which small businesses and consumers will be able to purchase IBM’s products directly.

Although last year, the company sold a staggering $3.3 billion (US$) worth of computer-related products online, this latest strategy is seen as a major expansion of its e-commerce operations.

As expected, not everyone is pleased with IBM’s added emphasis on direct online sales. In many transactions, IBM’s move could effectively eliminate the role of resellers and distributors, as business purchasers and consumers will gain direct access to the manufacturer. In this sense, IBM’s shift represents a possible gain for consumers and a potential loss for middlemen.

Turning Perception Into Reality

Despite efforts in recent years to market its AptivaTM line of PCs, IBM is still largely seen as a supplier of server solutions for big business. If successful, this new initiative could help recast Big Blue’s image as a small business and consumer oriented vendor. To a large extent, the Internet could provide IBM with a powerful and relatively cost-effective marketing tool to reach an emerging segment of the market, which the company has not yet significantly penetrated.

In the small business and consumer market, IBM will face fierce competition from major online PC vendors like Compaq, Dell and Gateway. Both Dell.com and Gateway enjoy the perception of providing fresh, innovative e-commerce destinations for PC purchasers, while Compaq seems to lag behind in appeal to the small business and consumer Internet-based market. But, with even three strong competitors, IBM has plenty of maneuverability.

Looking Good. Very Good.

At this point, the odds of success with its new online computer store are very much in IBM’s favor, for two main reasons:

Firstly, in 1998 alone, IBM invested $50 million (US$) in its “e-Business” online advertising campaign, which became one of the most successful campaigns in the history of the Internet. In 1999, the company plans to spend $75 million. The ads portrays IBM as a hip, Internet-savvy company with a Midas touch, through which consumers of IBM e-commerce products became wildly successful from doing business on the Internet using IBM products. While targeted at a corporate segment of the market, this ongoing marketing campaign will undoubtedly provide a solid basis for small business and consumer acceptance of IBM as a choice online vendor.

Secondly, IBM has had ample time to learn from the successes and failures of its competitors, which have, by now, chaulked up considerable experience in the direct Internet sales arena.

Gateway and Dell have both been extremely successful with their online strategies, and have even proceeded to round out their PC sales with computer peripherals and software offerings.

Compaq, on the other hand, has responded to friction with its channel resellers and distributors, by experimenting with a reduction its own direct sales efforts, thus avoiding head-on competition with its channel. Compaq also entered into the online software sales business. As a relative newcomer, IBM will enjoy the advantage of combining its e-commerce technology expertise with the strategic lessons learned from its competitors.