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OCR for page 437
Impact of Entrepreneurship
and Innovation on the
Distribution of Personal Computers
DAVID A. NORMAN
Two trends will have a major effect on the U.S. electronic business
equipment industry. First, by the erg of the 1980s distribution power
will have shifted from independent retail outlets to company- or
manufacturer-owned chairs, and this will limit the number of new
ventures and opportunities in this market. Second, standardization
of products will mean slower growth for new high technology com-
panies that have failed to recognize that there is indeed a standard
in the industry today.
Changes in the method of product distribution are having and will have a
major effect on the computer and electronics high technology industries,
particularly in the United States. The U.S. market is huge, and the market
for electronic business equipment, which my company, Businessland, ad-
dresses, is very large. There are 53 million white-collar workers today, for
example, only about 10 percent of whom have personal computers or elec-
tronic workstations. (I describe electronic workstations as the telephone and
computer coming together.) My former company, Dataquest, the high tech-
nology market research firm, estimates that the market will be $25 billion
in 1988, in comparison with about $9 billion in 1984. Interesting products
will be introduced In 1985, and there will be high growth in 1986, 1987,
and 1988. We are looking at a very, very large market opportunity, indeed.
Many people forget, however, that we really need to look at the markets for
which we are developing products and not just develop products for their
own sake.
In the past, U.S. electronics manufacturers had direct sales forces calling
on the business community. That makes a lot of sense when you are selling
a $50,000 or a $100,000 piece of equipment. But now the prices of electronic
products have come down dramatically and, at the same time, the cost of
437
OCR for page 438
438
DAVID A. NORMAN
making a direct sales call has continued to increase. I contend that to be
competitive in the world's marketplace any product that has a selling price
under $10,000 must now be sold through retail distribution outlets and the
manufacturer must have the volume of production necessary to be a low-
cost producer.
Businessland, for example, buys in large volumes from manufacturers and
sells to all segments of the business marketplace. It competes with the man-
ufacturer's direct sales force, but it tends to offer more service, training, and
support to the end user than the manufacturer's direct sales force does.
Businessland is a viable competitor at the high end of the market, selling to
the Fortune 1,000 companies, but at the same time it has covered all segments
of the business marketplace as well.
There are a huge number of computer manufacturers, companies that make
peripherals (e.g., printers, hard disk drives, floppy disk drives), and software
companies. They are all trying to get marketing distributors because they
cannot afford to call on all of the U.S. companies directly. They need to go
through retail distribution channels, such as Businessland, in order to reach
the marketplace. The problem today, however, is that many of these com-
panies are not able to get shelf space and thus are having a very difficult
time marketing their products. The point of distribution is where the profit
and the power are in the marketplace today.
Unfortunately, distribution channels are going to change dramatically over
the rest of the decade. Just reflect on what has happened to distribution in
other industries in the United States. In the l950s, for example, chains of
grocery stores came in and displaced the independent grocers. The same
thing is going to happen in this new, infant industry, which is now made up
of numerous independent computer stores and franchises—currently run by
independent businesspeople. Independent stores make up about two-thirds
of the outlets today; the other one-third are company-owned or manufacturer-
owned chains. ~ believe that by the end of the 1980s there will have been a
major shift in distribution power from the independents to company- or
manufacturer-owned chains. If that happens, and if 8 or 10 major chains
have 50 percent of the market, then the variety of products reaching the
market through retail distribution will be very limited. Businessland, for
example, can carry personal computer product lines from only, perhaps,
three manufacturers and a limited number of software and peripheral prod-
ucts. Many entrepreneurial, high technology companies are going to lack
shelf space in the future. This will greatly limit We number of new ventures
and the opportunities in this marketplace. Unfortunately, the grown of new
technological products will slow dramatically as this change in the channels
of distribution to Me marketplace proceeds.
Another trend that will slow technological growth in electronic business
equipment is the standardization that is taking place in the industry. Today
OCR for page 439
IMPACT OF F=REPRENEURSHIP ED INNOVATION ON DI=~B=ION OF PCs 439
the IBM personal computer, the MS DOS operating system, is clearly a
standard in corporate America. It is less so in the home office and in small
businesses. But standardization is having a major effect, even though many
people are not aware of the changes that have taken place in a short period
of time. Today, IBM personal computers account for 60 percent of the units
sold, and 70 percent of the volume in the business market. There has been
a major ship in the last year to their dominance in the marketplace. This
means there will be slower growth for new high technology companies,
particularly companies that have not realized or do not believe that there is
a standard in the industry today. Major computer manufacturers in the United
States have given up billion-dollar markets because they did not recognize
early enough that there was a standard and did not build products to meet
that standard. They were building products for engineers and designing prod-
ucts with features for a very small segment of the market, while the major
part of the market was not being listened to. Products were being designed
that did not meet the needs of the end user, who wanted standardization.
We are now seeing standardization in hardware and software, and we are
seeing the need for it in the networking and telecommunications areas. The
key is to listen to the marketplace, analyze that market, and develop products
that the market really wants and needs. And when you do, you will see
explosive growth.
Businessland is a good example of that explosive growth. In just 24 months,
from November 1982 to December 1984, the company went from start-up
to $25 million a month in sales. Its annual sales are now at $300 million.
That is the kind of growth that is possible.
The markets are large, the opportunity is great, but companies must clearly
address the marketplace. They must understand that there is a standard out
there, they must build within that standard, and they must develop compatible
products that have price and performance advantages for end users. Large,
qualified distribution channels are now developing, in all segments of the
business marketplace. But clearly they must have products to sell that meet
the customers' needs.
OCR for page 440
Representative terms from entire chapter:
major effect
