Internet Forcing Change

The surging Internet economy is forcing change in many corners of the channel, and small white-box VARs catering to small businesses are no exception.

VARs that have relied on their expertise to build bulletproof PCs and servers are being pinched from three sides: the drop in hardware margins, competition from online resellers and the growing influence of e-business.

VARs such as Alpha Computer Services Inc., Altamonte Springs, Fla., and Computers Etc. Inc., Falls Church, Va., both white-box builders who cater to small businesses, are finding they need to broaden the skills and services they offer by aligning themselves with other VARs or Web development companies.

"I don't have all the skills sets [for e-business] and it is too costly to attract that skill set and do everything ourselves. I'm looking to outsource it and align myself with other professional services companies that do Web-based authoring," said Gene Gunther, director of operations at Alpha.

The $4.5 million reseller is moving from being a traditional VAR to becoming a professional services orientation by no longer leading with white-box PC sales.

"We are listening to our customers and not looking for the hardware sale. We are taking a consultative approach and trying to find out where they want to be two years from now," Gunther said, adding the company also is offering hosting services.

In its solutions offering, Alpha is leading off with security encryption and firewalls, while striking up alliances with Web shops or VARs specializing in Web development.

In making those alliances, VARs have to be careful not to lock their clients into a proprietary technology and get assurances from their new allies that the customer will be taken care of it its top programmer departs, said Alpha.

"We can't lock our clients in. One of the things we insist on in working with Web development companies is that their product has to be fully pliable so another company can come in and easily take their place," Gunther said.

With under $2 million in sales, the new Internet economy is a threat to Computers Etc.'s box-making business, but it is also an opportunity. "The Internet is here to stay. We are looking to make ourselves more visible on the Internet, but currently we are not," said Abe Musa, company president.

Because of tight margins, Computers Etc. now is offering network maintenance and pushing its customers to sign service contracts, Musa said, adding it also is seeking strategic alliances with local Web developers so it can bring customers a broader set of services.

"A lot of small businesses are having difficulty in realizing the value of service," he said.

Alpha is making the transition to services because of its strong customer-relationship skills, Gunther said. "I want [our customers] to pay a contingency fee so I can do an assessment and analyze their needs. My people can go in and sell the concept of solutions instead of selling a box," he said.

"We are taking a different approach and still have the capabilities of what we did in the past. We can't cut off our existing revenue stream overnight," he said.CRN

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