Acer Launches New Channel Business Model

Acer Monday launched its new 100 percent channel-focused business model along with what the $13 billion Taiwanese giant is billing as the next generation of IT services, software and digital home entertainment products.

Acer executives insisted that competitors are making a big mistake by believing they have to kill their channel and go direct in order to be successful against Dell. They said Acer's plan is to capitalize on the confusing channel strategies of those rivals with a goal of increasing US sales by six times by the end of 2006 to $1.8 billion, up from $330 million.

"Acer is committed to going through the channel," said Acer Chairman and CEO Stan Shih, calling the Acer channel partnership a win- win strategy that will win out over the direct strategies taken by Dell and others. "We call it the winning formula for Acer. We consider our channel partners our key long-term business partners."

In an interview with CRN, Shih charged that Hewlett Packard and IBM have invested in direct sales because it is politcally more expedient to "downsize the channel" than their own internal sales organizations. "IBM and HP have to go direct more because they have a lot of overhead," said Shih. "If they don't go direct, they have to downsize more...They have already downsized. Instead of downsizing themselves, how about downsizing the channel. That is the nature of political fighting on downsizing."

J.T. Wang, president of Acer, who is slated to take over as chairman and CEO in late 2004, said the key players in the United States believe that in order to "survive or grow they have to kill their channel business and go direct." Acer does not buy that reasoning, he said. "Acer is committing to the channel business model 100 percent and is going to get the benefit."

Wang urged leading U.S. companies to re-evaluate their channel strategies. The "mainstream thinking" that the direct model is going to kill the channel is a myth, he said. The channel business model will continue to be the dominant, mainstream business model, he said. Wang predicted that the U.S. companies that have "tried to change their business model from 70 percent channel to almost zero percent channel" are going to be "hurt" by a backlash from channel partners frustrated with channel conflict. "All of the channel partners understand that no matter whether they are in the United States, Europe or Asia-Pacific," he said.

Shih, who co-founded Acer nearly 30 years ago and built it into a global computer industry giant, also launched new services, software and digital entertainment initiatives that dramatically expand the company's footprint. For example, in the services arena, Acer unveiled Acer e-Caring Services including an e-Caring Security Operation Service that includes system vulnerability scanning, notification, realtime incident alerts and monthly status reports all delivered in conjunction with channel partners. Shih stressed that all of the services will be delivered by channel partners.

On the software side, Acer unveiled a new Just in Time (JIT) instant messenger-like e-mail product, which detects the digital device of the user--such as a mobile phone or PC--and sends the message to that device. Shih said that the e-mail offering allows users to get mail instantly without having to open Notes, Exchange or an Internet browser.

Acer plans on introducing its eCaring Services and Just In Time mail product in the United States in the second quarter next year, said Gianfranco Lanci, president of Acer EMEA. He said the digital home entertainment products are not expected to be released in the United States.

Acer International Operations President T.Y.Lay said Hewlett-Packard and IBM have left a big window of opportunity for Acer by confusing channel partners with their direct strategies. He said that Acer has the scale and economics to provide channel partners with a business model that can beat Dell, HP or IBM. Acer's costs are about 2 percent higher than Dell's, but Acer has lower operating expenses, said Lay. He said Acer expects to close the margin gap with Dell and share any increased margin with channel partners.

Acer is backing up the new business model with a "significant" new investment in the U.S. channel, said new Acer America President Rudi Schmidleithner. He said the first order of business is ensuring that Acer maintains channel integrity and increases its notebook share in the United States. "We can not overload the (U.S.) resellers," he said. "We have to take it step by step. We are 100 percent fully focused to grow with the channel."

Schmidleithner assured U.S. partners that there will be no pricing conflict with larger volume players such as CDW or retailers. "We will not create conflict [like competitors have]," he said. "This confuses the channel. That is what a lot of vendors are doing by going direct. I do not understand what our competitors are doing."

Lanci said that it is critical that Acer succeed in the U.S. market next year. "The United States next year is one of our key priorities," he said. "It is very, very important. The U.S. market is 70 percent bigger than Europe. We believe there is a big opportunity there for us." Lanci said that in the past Acer did not have a "clear strategy" in terms of the channel. "In the states, we tried to do too many things at the same time," he said. "We didn't focus." Lanci said he expects to Dell to remain a major competitor into 2005, but that it is unclear what other competitors Acer will face in the United States with the pricing pressure in the PC market.

Lanci said Acer has succeeded in Europe by drop-shipping directly to customers and maintaining two to three weeks of inventory, while many of its competitors have three to six weeks inventory. "You can be as competitive as the direct business model," said Lanci, noting there are a number of higher costs associated with the direct business model that do not get taken into consideration.

Acer also unleashed an impressive set of digital entertainment products, including a new graphical user interface for its digital home PCs; an Acer Music download platform; an Acer E Box, which enables playback of digital music and viewing of digital video or photos stored in a home PC via a wireless network; an Acer E TVD, which adds IT and Internet functionality to an LCD television; and an Acer E Radio, which allows users to listen to Internet radio stations or digital music from a PC via a wireless network.

Other digital entertainment products include an E 2 Go device, which acts as a control pad to multiple digital media devices; an Acer Aspire E PC; an Acer E Tablet; and a Speech E Agent product that allows a user to use voice commands to access digital media. Acer also introduced an E Panel For Services, a new LCD product that is being billed as an intelligent advanced server control panel to monitor system status/utilization on Acer Altos servers..