Once upon a time, the distribution channel for computer products looked like a boomtown. Middlemen made fortunes simply by reselling other people's products. Today, that boom has gone bust.
Dell Computer became the envy of the world by identifying direct sales as a quick path to riches. Other companies followed Dell's lead, sending their once-wealthy resellers and distributors to the poor house. Among the riches-to-rags victims: Ingram Micro, Microage, and Tech Data. So it's surprising to find some channel folks who believe there's still gold in them thar hills.
Armed with Web sites, new companies are popping up, hoping to mine the reseller channel. Among them, Firstsource.com is quickly staking a claim.
RESELLER SPIN-OFFIn July, Firstsource.com was spun out from En Pointe Technologies, a computer reseller with $700 million in annual sales. In its first round of funding, Firstsource.com raised $9.3 million from private investors, including its CEO, Jordan Levy, who formerly served as CEO of the Softbank Services Group (now Client Logic) and as an executive at Ingram.
According to Firstsource.com President and Chief Operating Officer Joe Cox, the company currently is considering second-round funding. Mr. Cox, who previously served as vice president and general manager of ESPN Stores at the Walt Disney Company, says the company plans an IPO in the first half of next year.
Firstsource.com's origins date back nearly a decade to a mail-order company called First Source International that specialized in memory upgrades. The supplier, based in Santa Ana, California, was founded by Firstsource.com Vice President John Walsh, and eventually added PC products from more than 850 manufacturers. It marketed them through a print-run of 3 million catalogs distributed annually.
Firstsource.com's acquisition a year ago by En Pointe epitomized a furious consolidation among resellers and distributors struggling to survive in a world of shrinking margins and direct sales. With the specter of e-commerce looming, En Pointe recast its newly acquired unit as a dot-com company. It transformed Firstsource.com into a reseller-cum-Web portal targeting small to mid-size companies.
Firstsource.com now touts a wide range of products and services from numerous manufacturers and service providers. Company officials characterize the company as "ten stores in a single site." Products include hardware, software, office equipment, office supplies, and telecom devices. Service offerings include extended warranty service, on-site repairs, consulting, financial services, Web hosting, and tutorials.
A NEW YELLOW PAGESMr. Cox considers the site a kind of "yellow pages" -- an all-encompassing resource for small to medium-size companies. He acknowledges that product resales is a tough business with slim margins, and points to higher-margin services as a key revenue element and primary profit engine. "It's all about driving traffic to my Web site and converting that traffic to [buying] services," Mr. Cox says. The company charges transaction fees on Web site sales; third-party service providers, scattered nationwide, also pay listing fees to Firstsource.com.
Selling services is a challenging proposition, says Janet Waxman, an analyst with IDC. Moreover, computer services represent a complex sale, she says. Generally, people shy away from making complex purchases on the Web, but perception can be everything. "The level of complexity is in the eye of the customer," Ms. Waxman says.
While Firstsource.com offers instant global reach, up-to-date pricing, comparison shopping, inventory management, and relationships with hundreds of suppliers, the Internet allows just about anybody to make similar claims. Moreover, with such broad offerings, Firstsource.com encroaches on the turf of a wide range of competitors, including Home Depot, Staples, CompUSA, Works.com, and Onvia.com.
Old-fashioned discounting helps. Firstsource.com claims it offers big discounts to its smaller customers, many of whom date back to the company's traditional reseller days. Discounting is a cutthroat strategy with occasional tragic consequences, but so far it's given the company a market boost. Sales are expected to reach $30 million this year.
"Their prices are very competitive," says Pete Chiccino, IS director at Jefferson Bank in Philadelphia. Still, the human touch is what really sells him. Asked why he's a loyal Firstsource.com customer, Mr. Chiccino says, "[a particular Firstsource.com] sales guy is the primary reason."