IBM's personal systems group (PSG) has been bleeding red ink over the company's accounts for too many quarters for comfort. So to try and bring it back into the black, Big Blue has decided to reorganise the division's manufacturing processes and plans to sell its PCs over the internet.

Ken Batty, PSG marketing manager, said: "There's no doubt about it, two routes to market - internet and face to face - are more profitable in the long term than selling through partners because partners will always want their slice."

Choosing a bumpy road
That the vendor wants to sell PCs directly to large customers will surprise no-one, but Batty claims the channel will always be the company's preferred route to go after the middle market. Its decision to focus on selling boxes online to small to medium sized enterprises (SMEs), however, means it may end up turning away potential customers.

Batty said that IBM divides the very small business market, which comprises companies with under 50 users, into two camps: those that need help in buying and installing products, and those that can do it for themselves.

Customers needing services usually turn to a reseller for help. But Batty said resellers are typically interested in doing business with IBM because of its links to larger companies. "Our partners don't want to play in the very small business space," he said.

As a result, PSG will now concentrate on marketing itself to customers that do not need extra services because it knows it can make a profit on those sales. "Our prime focus is to build internet sales to small businesses," he said.

IBM previously tried direct mail and telesales campaigns to try and tap this market, but found that such schemes were not cost-effective. Now, it has established a constant advertising presence in the national and business press, pointing customers towards its website and call centre.

"If customers do have the skills they can come to us. If they don't, they will go elsewhere," said Batty.

David Douglas, group sales director at First Stop Computers, said he could understand IBM's decision to concentrate on this market. "Dell also encountered problems trying to do too much to help its customers, and it is now going back to being a manufacturing and logistics company," he said.

But Batty also admitted that IBM does not have anywhere near the number of resellers it needs to sell to small businesses that need its help. "If a lead comes to a call centre, we do have some partners that are players in this space, and few resellers are going to turn away a qualified lead. But generally, we are not getting to that space," he said.

As a result, the vendor has sent questionnaires to 240 SME resellers asking how it can persuade them to sign up to its partner programme. Batty added that IBM is also considering dealing directly with such resellers. "We took away those resellers that deal with our existing distributors, and asked those that have no contact with any IBM [distributors] whether they would be interested in buying direct from IBM."

While Big Blue is not trying to take customers away from its distributors, he attested, the company feels that such distributors are failing to promote its products to the lower end of the SME market.

Edward Nickerson, managing director at SME reseller Techniks, said IBM needed to realise how price sensitive the lower end of the SME market is. "I would like to see product and price consistency," he said. "IBM is one of the worst for consistency. It may have a fantastic deal for six months or so, but then all that changes."

But Batty countered that Big Blue is now among the most competitive vendors in the PC manufacturing sector. "We have a price strategy to win," he said.

Douglas agreed. "The new products are priced very competitively. Where that leaves resellers' margins is another matter," he said.

Reappraising relationships
But perhaps IBM will have more luck with PSG's new strategy. The group is now keen to sign up trade associations and other business organisations to sell its PCs to their members. "We want a single relationship that will give access to many customers," Batty explained.

Such trade association 'resellers' will not be able to take title to the product, but will act as agents for IBM's internet store. The scheme will work in a similar way to the deal signed with high street electronics retailer Comet, which has installed Big Blue's internet kiosks in its stores. The move marks the supplier's re-entry into the retail space.

But despite IBM's claims that it is trying to find new ways of selling PCs to the very smallest of small businesses through the channel, its latest schemes would appear to indicate that it is currently limiting itself to low-cost routes to market such as the internet to boost its own immediate profitability - even if that means turning away from those customers that need help.

Whistling on too many platforms

Two weeks ago, it emerged that IBM was carrying out an internal review of its server platforms - codenamed Mach 1 - to consider whether to rework its entire line.

Since then, IBM representatives have refused to comment further, saying the supplier will release more information towards the end of the year. Its official statement read: "IBM servers are a key focal point of the ebusiness infrastructure. We are considering a variety of things that will position IBM and our customers to be prepared to take advantage of the next generation of ebusiness."

Phil Payne, an independent consultant at Isham Research, said the number of platforms that IBM supports is getting out of control, prompting it to review what its future investments will focus on.

"IBM has a vision that all its proprietary platforms should share the same technology. In the long term, it wants convergence," said Payne, adding that it is not in IBM's nature to drop product lines and alienate customers. "The S/390 does not have an entry-level system that can take on new users, so it's open to question what its life expectancy is," he said.

Mark Lillycrop, research director at analyst Xephon, said IBM has had long-standing problems over the number of product lines it supports and over the image of its S/390 mainframe and AS/400 families. "For many years, IBM has been supplying numerous server architectures and it wants to move customers from thinking about the distinctions between server lines," he said. "Many of the servers share the same components, but there are still strong feelings amongst IBM and its customer base."