Small business is "doomed" according to Dick Smith. We examine what the future holds for traditional computer store resellers.
Customers and businesses generally knew what to expect from their telecommunications company. Home phone, broadband, mobile and more recently, TV and video. Likewise their local computer store performed a rather predictable role.
But times are changing.
A growing trend is emerging whereby telcos are pushing out into the traditional computer store territory, selling hardware, software and even mobile applications at the same time as many resellers are beginning to look increasingly like carriers.
In 2007 Telstra launched a dedicated business unit to focus on non-traditional Telstra markets. Its Consumer Apps and Services division last week announced a partnership with mobile security company Lookout to resell the company's mobile application to its Android customers in a designated Telstra section in the Android app store.
The partnership allows the telco to play the part of a traditional reseller by providing added services to Lookout’s application, which taps into the growing mobile security market by offering malware, spyware, phishing and malicious link protection to mobile users. And it comes as the carrier ramps up its IT offerings via offerings like T-Suite - which is the exclusive local distributor for Microsoft's cloud offering Office 365 - and its recently luanched Telstra Digital Business
“Watch this space”
Telstra's consumer Apps and Services director Freddie Jansen Van Nieuwenhuizen told CRN the company needed to constantly look for ways to differentiate its offering.
“Consumers as we all know are choosing with their fingers, and if as an operator you are not operating in or enabling that you are not very wise,” he said.
While Telstra is studying how it can leverage what Van Nieuwenhuizen calls ‘global ecosystems’, it will be very selective in choosing products that enhance its core offerings in mobile, wireless and broadband. He said though the company was not attempting to dominate the traditional reseller market, smaller channel companies may need to rethink their customer proposition.
“When you add retail front ends with service there will always be a place you can differentiate yourself in the market.”
“Extreme capitalism” to force the death of small business?
According to seminal Australian entrepreneur, Dick Smith, the outlook for small businesses is grim. The founder of Dick Smith Electronics, Dick Smith Foods and Australian Geographic told CRN the days of young entrepreneurs who could start a small business and grow it into a large business were over because the “competition from multinationals is so great.”
He cited the “extreme capitalism” and perpetual growth nature of Western society as key drivers of a trend which would ultimately see large telco and IT companies attempt to be more vertically integrated.
“When you start to get limited growth, companies have to do extraordinary things,” Smith said. “They either have to eat each other up or become more vertically integrated, so unlike traditional resellers the whole thing is combined, as we’ve seen with Apple manufacturing, distributing and retailing directly.”
Smith expects the trend will spread globally, going so far as to predict that the technology markets of the future will be big enough for just two multinational behemoths, a development likely to make survival difficult for small businesses.
“You only have to look at a small grocery retailer compared to Aldi,” Smith said. “They are the ultimate retailer where they only sell their own brand, in many cases they control the manufacturing and retail directly, and they can do it cheaper.”
Small businesses need to direct attention towards maintenance and support and niche areas in order to survive, Smith said, or hope a bigger competitor shows an interest in acquisition.
“You’ll always need an individual to connect the computer and I think there’s a niche market for support services but that will be a limited amount of individuals, otherwise everything will become big and globalised. We’ve caused it because we want everything at lower and lower prices.”
“I don’t think they can do anything about it. Get taken over by Apple if they can? Sell themselves to somebody else?”
Good customer relations will preserve high street resellers
Managing director of service provider Brennan IT Dave Stevens is less fatalistic. He said telcos had failed in their efforts to deal with the complexity of traditional reseller-customer interaction despite having tried for over 25 years.
"I think Dick Smith is a pretty smart bloke and he has achieved a lot, but I disagree wholeheartedly,” Stevens said. ”There are as many different requirements as there are people, and there’s always going to be room for high street resellers of consumer-based electricals right through to what we call the lucky turtle approach, discount electronics, and through to highly customised business to business providers.”
“If they [carriers] could they would have done it by now. It’s not about product and returns, it’s about how they run client relationships.”
Stevens said the nature of the beast meant any need is immediately filled.
“If I see [one company monopolising one particular product], I open another store in a destination close to the high street, and I fill the need and rapidly expand to fill that market,” he said. “I might not expand much but that need will be filled. I also might not take a lot of market share that way but there’ll always be choice.”
Small business and the NBN: help or hindrance?
As the Federal Government’s National Broadband Network is rolled out and telcos begin unveiling their pricing plans, a number of traditional carriers are looking at options beyond carriage. TransACT’s general manager of retail David Parkes spoke of the telco’s plans to move beyond the router and modem into the home. Like Telstra the company is taking a stab at the security and value-added services markets.
“We all live and breathe in an industry that effectively gets cheaper every month, and to deliver more revenue you have to deliver more services or product,” Parkes told CRN. “I see it as a way of stimulating revenue, and as delivering greater customer satisfaction. If we can deliver an ecosystem beyond the modem, that’s something we find attractive. Our research tells us our customers have a bit of money left over in their wallet and that money’s going to someone else. If we can provide a service at the right price, we can provide a one stop shop for consumers.”
TransACT's intention to move into the traditional reseller space was further underscored recently when it launched a bundled offer based on Acer's Iconia A501 tablet.
Parkes admitted, however, that Stevens was right to question the ability of telcos to provide support and to cope with the sorts of complex customer relationships that accompany the provision of end-to-end solutions. However rival telco and new owner iiNet cited TransACT's strong customer base as a key reason for its decision to buy the company.
“If you’re increasing that level of complexity, and delivering a customer an end-to-end package, and you have issues in that service delivery, that’s not going to create something valuable for consumers.”
TransACT's expansion will involve the launch of an offer around service delivery into the home and small to medium enterprises next year, in a move similar to iiNet and its BoB squad. Parkes expects the focus on service delivery to become more prevalent among telcos.
From hardware to software
Melbourne-based online computer store City Software was founded in 1991, incorporating both hardware and software into its product offering. Manager Brandon Soo is unconcerned about the threat from his new telco rivals, despite hardware making up 50 per cent of the retailer’s overall business.
“It may affect us a little bit, but we’ll pick that up in other areas anyway,” he said. “Most of what we do is computer hardware and software, but as time moves on we’re expanding out into stationary for small to medium business. When we cater to our customers, we’re catering not just for the technology but also stationary, and we can look at more consumer-y products. Things like cameras and televisions are areas for us to grow.”
Soo agrees that good customer relationships will be key to ensuring the survival of traditional computer store resellers.
“We deal with customers on different levels. We’ve got our consumer business which deals with home users, and small to medium business customers looking at servers and software,” he said. “I don’t think that’s the type of business that will die too quickly.”