Software and services – who needs them?

Leave well alone

It is a truth so obvious that no one says it any more because it is so obvious, that it is extraordinarily difficult to make big money building or selling PCs.

The big profits, such as they are, lie at the components level - not at the assembly, distribution, or retail level.

There is of course one outstanding exception - Dell. Scale economies, logistics thump, a successful direct sales model - all means that it makes more money out of building and selling PCs than any other company in the world. Unfortunately, the company is so - Q3 missteps and all - so far ahead of the pack that it is unrealistic for other PC resellers/builders to try and out-Dell Dell.

However, there are plenty of system builders left in Europe - 40,000-plus at last count, according to Microsoft's OEM team. This remains a significant resale channel. But where does the future lie? (No, we don't have the answer, we're just rehearsing the questions.)

Vendors, analysts preach software and services - that's the easy bit. It's a message that the financial community wants to hear, too. Which is why PC maker Gateway last week boasted that half its profits came from software and services. This percentage was five per cent higher than expected. Granted, this may have more to do with the fact that profits from PC manufacturing business, responsible for the overwhelming proportion of revenues. But how valid is the company's assertion that it is 'no longer a pure-play PC maker'.

Or to ask the question another way: how much software and services would Gateway have, if it didn't make PCs? Not very much, we suspect.

It's kind of obvious, isn't it? Most system builders/PC resellers have always sold software and services on the back of selling tin. Maintenance contracts, installations, a bit of networking here, a bit of accountancy software support there - all this is grist to the profits mill. But these profits are made from people and companies who want to buy kit, maybe from a local supplier, or from someone who's been recommended to them by a friend or colleague.

It's kind of obvious, too that resellers should stick to what they are good at. All this talk about the need to change is just that - talk.

Companies which are successful at selling PCs, which are good at delivery post sale, which don't spend money before they get it, which refuse to sell hardware as loss leaders, which avoid the temptation to buy no-name, no warranty components - these companies will continue to chase their customers up the value chain with software sales and services contracts. These companies -and there are plenty of them out there- have little to fear. ®

This article appeared first in Microsoft Partner, a site for UK resellers.

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