Handicapping the Holidays: You can run but you can't hide.

Day 1, Q4: The clouds are dark and a huge storm is racing toward RetaiLand in the form of an uneasy truce between dock workers, labor unions and safe passage of billions of dollars of merchandise. On top of that, there are the now somewhat normal issues including a global recession, an IT depression, nothing new and exciting from our trustworthy demand-generators Intel and Microsoft. Just for fun, toss in a few less days in between Thanksgiving and Xmas to get it all sold.

But how do I reconcile with what I see and hear the day after Thanksgiving: a line of customers at a nearby Fry's store, a record day of sales at Wal-Mart ($1.4B!!!) and a huge bump of sales (+50%) according to online retail researchers.

Entertainment and utility software, digital media related hardware (digital cameras, photo printers, MP3 players, burners -I need one too!, flat displays) and a select number of other SKU's are on fire but if you're not in the HOT ZONE forget it, you might even be off the map. This is not a holiday like those of yesteryear where a big wave would carry all boats (read: products). Consumers today don't use a shotgun they use a rifle and armed with internet-based data to support their decision making, they are sharpshooters, at that.

It's too early to call if Q4 will be boom or bust but it seems to be off to a good start. Let's just hope it carried through the end of the year. And maybe, as Prince sang, "We can party like it's 1999" (again!).

My forecast for 2003: Better.

Keith Newman is the Editor and Publisher of ChannelMedia - the Retail Edition. This newsletter is free, courtesy of Vision Events and we are looking for contributors and readers. If you are interested in contributing or sponsoring an article, please contact keithn@telocity.com.

On behalf of all the folks at ChannelMedia, I wish you a Happy Holidays and a fantastic 2003. Please keep us on your virtual newsstand.

NEWS

Comdex: A little bit on the lighter side
By Steve Cross, ChannelMedia Columnist

My friends, if for any reason you needed more evidence of how soft our little computer industry has become you would have to look no further than our favorite product parade, Fall 2002, that concluded last month in Las Vegas. From a high of 2,300+ exhibitors in 2000, the show hit a reported low of 1,000. After walking the floor for three days, and talking with attending vendors, it appears to me that 1,000 would be quite a stretch. Even using the official numbers, Comdex is now 40% of its former size. Its owner, Key3 Media, is rumored to be discussing bankruptcy protection even as this article is being written. One alarming sight; in the Eastern side of the Main Hall, a huge area was taken up by hucksters with "scalp tinglers", "shiatsu massage chairs", and electric massagers. It looked less like the Comdex of old and more like a State Fair in the farm belt. This area had to be three rows deep and 4 aisles wide, and would otherwise have had vibrant displays from at least 50 small companies. About 35% of the North Hall seemed to be screened off, and about 20% of the Main Hall. The South Hall was full for the last CES in January, but completely closed for Comdex. As an aside, there was lots of buzz at the show about how CES will replace Comdex as the biggie here in Vegas.

Weather was fantastic, in the 70's which was a big relief for many of our International friends, and those from the northeastern US, where winter has settled in. Dry as a bone, as always. It is a desert, ya know. Of course the usual suspects like Microsoft, HP, Nokia, Palm, etc. were fairly busy, but there was no SONY, no IBM, no Sun, at least not on the show floor. The international pavilions were also smaller; Taiwan only had 120 companies instead of its usual 200, Canada with 15 instead of 40, and Hong Kong with a smattering. The most amusing international pavilion was, as always, the French pavilion, which instead of product/manufacturing companies had regions represented for your potential relocation to Europe. I think we all ought to move to the South of France. Certainly looks charming enough. All sniping aside, there was enough good stuff to keep your eyes open and your curiosity piqued. Nokia was packed for the whole show. I was blown away by the new handsets, and kept returning to the booth, like a moth to a flame. I've been dying to get a new phone, with wireless, a color screen, and a camera. Don't need one, as I carry a cheapo Nokia already, just would love to have one! Failing that, I would be very happy with a Nokia 9290...the brick. That's the one that opens up longitudinally (lengthwise for those who majored in Computer Science), exposing a QWERTY keyboard for wiring emails. My thought: Great product. But instead I carry a cheapo Nokia 3360 that's reliable. And did I mention it's cheap?

There were some real crowds in the huge Palm area, with separate stands for third party suppliers, and a big demo theater with live presentations all-day, totally packed...about 150-300 people at most times. This year Paul Leeper, evangelist, is doing demos again, with the passion and fervor of a true believer. After watching him work, I'm convinced that Paul is the hardest working man in the industry. Nice fellow, too.

Palm's unstated strategy seemed to be strength in unity....lots of Palm's suppliers had some great stuff: ACT is now out for Palm, and a lot of people may just switch from Outlook to ACT this year to take advantage of a great marriage of products. Margi's Presenter-to-Go just gets better and better for taking PowerPoint and other presentations on the road. A must for any Road Warrior who makes a lot of presos. Lots of memory accessories, keyboards, cases, database software, address products, GPS, great stuff to outfit your Palm PDA. Not to be outdone, Dell had several kiosks with their new PocketPC offering. Cheap color seems to be their watchword. Lightweight, good form factor, and about $100 cheaper than the other PocketPC guys. Dell will do to them what they are trying to do to Palm. Watch out Compaq (HP). By the way, in the HP booth, which was packed at all hours, I could find no mention of Compaq. No logo, no names, no products. Like they vanished from the face of the Earth, which indeed they did. If anybody had any doubts that Carly Fiorina bought Compaq for its consulting and service organizations, those doubts should be dispelled by now. Compaq is in process of disappearing.

While fooling around in the Hughes area, looking at Satellite communication, I was introduced to a CEO who really has her head on straight, Alison Haugan from Optistream. This outfit (headquartered in Fresno, CA of all places) specializes in delivery of satellite communication to rural America. How do they do it...CHANNELS!! Optistream has created a channel of mom-and-pops who service schools and SMBs nationwide, but only in the rural areas. Novel approach, huh? There is no other way for small-town clinics, schools, hospitals, etc. to get high-speed access for distance learning, teaching, training, etc. Talk about finding a need and filling it in a practical, and mutually beneficial way. This outfit seems to me to define ingenuity and win-win. Hope they have great success. I love stories like these.

Talking about channels, I had a really nice surprise in the Linksys booth. As I walked around the perimeter (trying to get back to Nokia, my heart's desire) I noticed a huge poster on the side of the Linksys booth listing their partners by channel. They had separate listings for distributors, retailers, direct response companies, VARs, and e-tailers. How refreshing to find a company who understands what their channels are, what partners are in what channels, and how to identify them properly. Clean, clear, crisp communication. Their Marcom people are to be applauded. By the way, they do it right, automatically, as nobody on the booth could even tell me who generated the poster. It just shows up that way. I'll bet you they have at least one person in Marcom or Channel Marketing who their CEO should take out to lunch as a thank you. A bonus wouldn't hurt, either.

My next Comdex revelation at the WiFi pavilion...its all over. WiFi is now in deployment phase and is no more exciting than the gas or electric company (well, much less exciting than those gas and electric companies in California). The folks in that area were selling to each other, not us. Chipsets, infrastructure, etc. All the good stuff like base stations, cards, etc. is working its way to companies everywhere. Its really cool, to watch as a technology hits the mainstream and becomes nearly invisible as it becomes ubiquitous (working on my vocabulary). That process reminds me why I'm in this industry (besides making a living).The two DVD pavilions were crammed with product, but seemed a little low in the customer walk-through department. DVD Plus (plus RW) was a nicer pavilion, but wasn't as busy as the Minus Pavilion. Minus was close to Microsoft, and Plus was near Iomega. Like they say in real estate; location, location, location.

What would Comdex be without some name dropping? And of course I saw some familiar faces, like Scott Strunk from Tiger, Robert Straight and Dominic Constantino from @Reps, Tim Bajarin well-known advisor and consultant, Dan Dempsey from Marketlink, Greg Wilkes from Digi, Steve Glatt from Mall, the comedian Gallagher (very incognito), our own Keith Newman, Jill Abramson from S&SPR, Chris Botti (Sting's sideman and trumpeter) over at Micro Exchange's booth, lots of Austin Powers impersonators (very passé, baby), a couple Elvises (Elvii?), and a great Robin Williams impersonator (down to the really hairy arms).

Bill Gates and Microsoft were pushing the Tablet PC, but it seems a little underdone to me. Wait for the next iteration. Walt Mossberg did a great article for the Wall Street Journal just before Comdex on Tablet PC, and I think he hit it on the nose, as he often does. Lots of roving ambassadors on the show floor with Tablets, but the only one I liked was from ViewSonic (of all people). Nice display, which makes sense coming from them. Regarding the Tablet PC, like the Cub's fans always say "wait 'til next year".

And that's all from Las Vegas, where winter is fast approaching. Temperatures are dropping into the frigid 60's during the day.

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NEWS

Retail Digest

Web auction site eBay launched a new online store Monday designed to make it easier for companies and consumers to buy used electronic equipment, a bid to capitalize on tight budgets for spending on technology. eBay also said it would offer free shipping on electronics in order to spur consumer sales ahead of the crucial holiday season, a move that tightens a high-stakes promotional competition with rival Amazon.com. Dubbed eBay Electronics, the new online store has already been up and running as a test site, with 700,000 new, refurbished, or used products for sale daily. The site is generating the equivalent of $2.2 billion in annual sales, according to the Web auctioneer.

Though eBay Electronics carries hot-selling consumer items such as digital cameras, video games and flat panel displays, it also sells enterprise-grade equipment as companies hurt by the tech spending downturn sell off their equipment, often to other companies looking to save money. "We definitely have had more business buying activity on eBay over the last year, said Todd Lutwak, director of eBay Electronics, "the best ideas from eBay really bubble up from the community." In addition to the formal launch of eBay Electronics at the Comdex trade show in Las Vegas, eBay is also introducing free shipping on electronics in order to spur consumer sales ahead of the year-end holiday season.

Computer Renaissance, a national franchise that buys, sells and trades top quality name brand, reliable new and refurbished computers has teamed up with Ypsilanti-based Wireless Toyz, a wireless franchise with the largest multi-carrier retailer of wireless products in the country, to provide a convenient one-stop-shop for wireless-savvy consumers. The two companies recently signed a deal to co-brand a Wireless product line available to customers at Computer Renaissance stores nationwide. Computer Renaissance employees have been trained on the equipment to assist customers with technicalities and questions about the products. The first stores to introduce the new line are in Wisconsin and Idaho and will be in operation by November 2002.

"You see CO-brand deals like this happening all the time with fast food chains. By adding a different line of products into an already successful operation, consumers save on expenses and generate additional income," says Richard Simtob, VP of franchise operations for Wireless Toyz. "The Computer Renaissance deal will give us exposure in over 40 states and will create an immediate national brand. Now customers from all over the country will have the concept available to them."

Sony Pictures Digital Entertainment Gets Retail Religion

Never underestimate the power of the channel.

When Sony Pictures Digital Entertainment needed a new way to reach potential customers for its Screenblast software programs, offered since last fall as downloads from the Screenblast Web site, the company turned to superstore retailers Best Buy, Micro Center, CompUSA and its own Sony Style stores. Beginning Nov. 1, Sony began offering its Screenblast Movie Studio and Screenblast Music Studio titles at $69.95. The titles let people edit, enhance and share digital videos, photos or music files.

One of the first ads for the titles to appear in retail preprints showed up Nov. 9 when CompUSA advertised Screenblast Movie Studio at $49.95 after a $10 instant and a $10 mail-in rebate. There are two important takeaways from this tale. Number one: downloads alone do not define a distribution strategy. Number two: rebates drive purchasing decisions for computer software.

Earlier this year, Sony had announced the layoff of 30% of the Screenblast Web site's staff due to a downturn in advertising. While users of digital cameras and digital camcorders can still go to the Screenblast site and download Sony software, the retail presence raises the profile of Sony's offerings and places them front and center in the marketplace. It also puts the company on the shelf next to competing software products and just a few aisles away from the products they're intended to be used with.

What might be next for the Screenblast retail initiative? In-store demos? At retail, the sky is the limit and Sony was limiting its opportunities by only making the titles available online.

Sony has demonstrated that it is a quick study when it comes to retail marketing. The $20 in rebates offered on the Movie Studio title is par for the course for titles in the productivity genre, according to retail ad tracking company Beyen Corporation. Rebate offers have accounted for more than 60% of advertised software offers in 2002, according to the latest data from Beyen. Rebates help publishers attract new users to their titles and help retailers drive traffic into stores. In spite of high redemption rates and the challenges involved in managing these programs, the economic proposition remains attractive for both the retailer and the publisher.

Productivity software is the most heavily rebated segment including such categories as virus detection, system utilities and tax preparation. More than three quarters of productivity software offers (76.5%) include rebates. Slightly more than half of all educational software ads (54.0%) include rebates, and entertainment software has the lowest level of advertised rebates, at 28.2% of the total. Once popular net-to-zero rebates accounted for only 5.9% of total retail software ads with Symantec (23.2%) and Network Associates (15.4%) accounting for a substantial portion of the total so far this year. Productivity software remains the most frequently advertised computer software category, representing 61.9% of the total, followed by entertainment software at 29.1% and educational software at 8.9% of all retail computer software ads. The data reported here is based on the tracking of retail preprint and run-of-press advertising by retailers drawn from 102 daily newspapers encompassing 85 US metropolitan areas. Beyen's North American headquarters is in Niagara Falls, New York, with its corporate headquarters in Dusseldorf, Germany. For further information contact Roger Lanctot, director of advertising analysis at (905) 374-4596.

Saunders intro'd the new RhinoSkin Aspect Case at Comdex. The Aspect hardcase is the result of months of product development and features the patented new WhisperGlide™ silent opening system that allows the cover to fold behind the bottom of the device for easy single-handed use. The first RhinoSkin Aspect case to be released is designed for the Hewlett Packard iPAQ 3900 and older models and is currently available at RhinoSkin.com for $34.95. "We are very excited by the early reaction we had for the Aspect at Comdex," said Adam Willwerth, Group Marketing Manager of RhinoSkin. "The Aspect combines the unique design functionality of the original RhinoSkin Slider case with a refined look and improved functionality."

The RhinoSkin Aspect fits the HP iPAQ 3900, 3800, 3700, & 3600 series devices and reflects the shape, color, and elegance of the iPAQ devices. The top cover of the case is constructed of molded aluminum while the base is an ABS plastic to support wireless functionality of devices. RhinoSkin cases are available online at Saunders-usa.com and at major e-tailers such as Buy.com, Amazon.com, Mobile Planet, and Zones.com, as well as retail locations nationwide such as Staples, CompUSA, and Office Depot. RhinoSkin products are distributed both by D & H and Ingram Micro and are available through all major commercial channels. Saunders- Solutions for How You Work, a privately held company based in Readfield, Maine, manufactures and markets RhinoSkin™ brand of Case Solutions for Mobile Technologies. Saunders, is a leading manufacturer of top business products including clipboards, aluminum forms holders, UHU glue, and other school and office products. For more information visit www.saunders-usa.com.

Nintendo's profits plunged in its fiscal first half, as the Japanese game maker was whipped by a strong yen and stiff competition from Sony (SNE:NYSE - news - commentary - research - analysis) and Microsoft (MSFT:Nasdaq - news - commentary - research - analysis). Group net profits plunged 45% to 18.9 billion yen (US$154 million), from 34.35 billion yen last year. Group sales fell 7% to 208 billion.

Operating profit at the game maker, which controls the popular Mario Brothers and Pokemon game franchise, dropped 45% to 27.92 billion yen. Sales of its GameCube console actually surged to 2.88 million units, from 510,000 units in the same period last year. Software for the console reached 20.21 million units, from 710,000 units last year. The news doesn't come as much of a surprise after the onetime leading video game console and software company slashed full year profit and sales forecasts in September to 80 billion yen, from 90 billion yen. It reaffirmed its guidance Thursday. Sales for the full year ending March 30, 2003, are expected to reach 600 billion yen.

Looking ahead, the company is hoping to sell 10 million GameCube units and 55 million units of software by March next year.

Just wanted to give you an update on e-commerce sales for Kmart.com over the long Thanksgiving weekend. From Thursday, November 28 to Sunday, December 1, Kmart.com saw a sales increase of 113 percent over the same period last year (Thanksgiving through Sunday). Here is the break out:

Thanksgiving: 19% increase
Black Friday: 138% increase
Saturday: 142% increase
Sunday: 155% increase
TOTAL: 113% increase

The top products in terms of dollars were:
1. Sylvania Triple Combo TV/DVD/VCR $179
2. CDs (Shania Twain, Tim McGraw, Faith Hill, Jay Z, 8 Mile) Assorted Prices
3. DVD (Monsters, Inc, Spiderman, Star Wars Episode 2, Ice Age) Assorted Prices
4. 7.5' Lighted Manhattan Pinetree $129 5.
5. Grand Teton Pinetree $129

The top products in terms of units were:
1. CDs (Shania Twain, Tim McGraw, Faith Hill, Jay Z, 8 Mile) Assorted Prices
2. DVD (Monsters, Inc., Spiderman, Star Wars Episode 2, Ice Age) Assorted Prices
3. Spiderman Sheet Set $18.49
4. Spiderman Comforter $24.99
5. VHS (Monsters, Inc., Spiderman, Star Wars Episode 2, Ice Age) Assorted Prices

Kmart.com's free shipping on orders of $99 or more promotion began on Black Friday and runs through today. The site is also currently featuring a sale of up to 70 percent off all jewelry with free shipping. Other categories that performed well over the long weekend were Martha Stewart Everyday, Toys, Electronics, Entertainment, Jewelry and Trim a Home. Kmart.com did no dedicated advertising over the weekend, aside from being included in Kmart's weekly advertising circular (which reaches 72 million households per week) and being tagged in Kmart holiday television commercials.

Kmart.com's sales far exceeded the company's expectations for this time period. Kmart.com sales also exceeded analysts' expectations for the holiday period, which range from a 15% to 35% increase.

Publisher Ziff Davis Media announced on Wednesday that in January it will launch a new monthly video and PC game-related magazine, called GMR. The title, a joint effort between Ziff Davis and game retailer Electronics Boutique, will report on games for PlayStation 2, Xbox, GameCube, PC and Game Boy Advance. Current Ziff Davis Media Game Group creative director Simon Cox will serve as the editor-in-chief of GMR. "We plan to create a new type of magazine that will appeal to a large portion of those 20 million core video and computer gamers who aren't regularly reading magazines right now," said Cox. "Our news and previews will cover a shorter time frame as well, creating buzz about games shipping over the next few months, not years." GMR will have an average rate base of 225,000 for 2003, and will be marketed in Electronics Boutique's 1,000 retail stores. http://www.ziffdavis.com.

NEWS

CEA: On the Longshoremen's Agreement

The following statement was issued today by Consumer Electronics Association (CEA) President and CEO Gary Shapiro in response to the announcement that the longshoremen's union and shipping companies have reached agreement on a new contract that would effectively end the West Coast port dispute: "We applaud both management and the longshoremen's union for reaching this historic agreement and remain hopeful that this marks an end to the ongoing port dispute. We call on the union and its members to review and ratify this contract as quickly as possible so we can return a measure of certainty to consumer electronics companies and others who rely on goods moving efficiently through West Coast ports. "Our industry recognizes and greatly appreciates the leadership provided by the Bush administration in invoking its powers under the Taft-Hartley Act to reopen the ports and bring labor and management back to the negotiating table. "The high-tech industry is among those most affected by a halt in shipping through West Coast ports. Based on information from its members and analysis by the association's market research department, CEA estimates that 70 percent of imported consumer technology products enter the US through West Coast ports. In terms of dollar sales, 56 percent of all consumer technology products sold in the US enter through ports on the West Coast.

"To that end, and with more than $28 billion of consumer electronics goods imported annually, we urge shipping companies, the related unions, the Bush administration, Congress and all other interested parties to work together to guard against potential port disruptions. These include not only labor disputes but also terrorist acts, labor shortages, cargo theft and weather disasters. Any of these could have a severe impact on our industry, resulting in declining inventories, fluctuating prices and higher overall costs for the economy. Our industry looks forward to working with the federal government and all interested parties to address these concerns."

NEWS

Tablet PC Product Review
By Matt Sargent, Director of Research, PC Group

With the marketing strength of Microsoft and the support of tier one vendors, the Tablet PC has become a mainstream reality. Tablet PCs have floated around the periphery of the PC market place for some time, utilizing for the most part overpriced proprietary designs, targeted for exclusive vertical markets. Windows XP-Tablet OS changes all that, creating a common platform from which vendors can work from, allowing for flexibility to create several new an innovative designs.

Included below is a review of the Tablet PC introductions from Fujitsu, ViewSonic, Toshiba, HP (Compaq), and Acer.

Fujitsu, a long time participant in the tablet PC market has released the Stylistic ST 4000 Series. Fujitsu has been selling tablet PCs for over a decade, with the vast majority of products focused on vertical markets.

The base model Fujitsu Stylistic ST 4110 utilizes an 800MHz ultra low voltage Pentium III-M processor, 256MB of RAM, shock mounted hard drive 20GB hard drive, and a 10.4" display. The system sells for $2,199 and includes a one-year warranty. The Stylistic ST 4000 comes with a USB keyboard. From now through December 14th, users can upgrade to the wireless keyboard for free. Additionally, Fujitsu is offering a docking station as an upgrade option. This docking station is somewhat similar to the docking station Compaq is offering with its system. Fujitsu is charging $350 for its DVD/CD-RW docking station while Compaq is charging $598. The Fujitsu docking station is a cradle type of device, which allows the user to utilize the tablet as an upright LCD display. ARS believes this docking station offering is beneficial to the success of the 4110 in that it alleviates users concerns of not being able to utilize a tablet PC in the traditional keyboard-upright monitor method. Alleviating this concern opens the Stylistic ST 4110 to a much wider crowd within the commercial market.

Along the same line of the docking station, Fujitsu is offering a portfolio case and a case that allows one to prop up the tablet in a traditional vertical manner. This allows the highly mobile user to easily take up a traditional vertical workstation stance with minimal weight of footprint.

The one detractor for the 4110 is its high price. At $2,399 for the 40GB, 802.11b model, the ST 4110 is one of the higher priced tablet PCs products. The somewhat similarly configured Compaq offering sells for $1,799, the ViewSonic product sells for $1,999 and the Acer product sells for $2,199.

Outside of the pricing issue raised above, ARS believes that Fujitsu's new tablet PC may not take off as quickly at it could due to lack of promotion. The new systems are available on Fujitsu's website, but beyond this it is difficult to find information on the new products. This is not the case with the Acer, Compaq, and Toshiba tablet PCs that are being widely advertised. One example of this is CDW, which is currently listing a front-page advertisement for the Tablet PC initiative. The front-page spot light links to a detailed "learn more" piece on tablet PCs and what makes them valuable ("What is a Tablet PC", "Not Just Another Notebook"). The front-page spotlight also has a link to "available models". Listed from this link are models from Compaq, Toshiba, and Acer. Fujitsu is completely left out. This lack of promotion is concerning due to Fujitsu's long-standing commitment to the tablet PC market place.

Strengths
• Thin and lightweight
• Docking station option
• FireWire

Weaknesses
• Design lacks flair
• High price

ViewSonic has entered the portable PC market with a tablet PC supporting Microsoft's Tablet PC initiative. The Tablet PC VC1100 includes an 866MHz ultra low voltage Pentium III-M processor, 256MB of RAM, 20GB hard drive, 10.4" display, integrated 802.11b, and a one-year warranty for $1,999. A docking station option is also available, but appears to be closer to a port replicator with no optical drive options visible from product literature. ViewSonic is charging $299 for this option.

The ViewSonic product is intriguing, but given ViewSonic's low-brand awareness with the mobile PC space, ARS believes it will be very difficult to break into the corporate PC market which will be the initial customers for this type of system. ViewSonic is offering the systems through Tech Data and Ingram Micro, a step in the right direction, but ARS believes ViewSonic has a long road ahead of them to make this product successful.

Specifications

Strengths
• Attractive price

Weaknesses
• Size - Large for a system not including an integrated keyboard
• Poor battery life

Toshiba has entered the tablet PC market place with a hybrid approach system branded as the Portege 3500. The Portege 3500 sticks closest to the roots of the traditional notebook form factor. The Portege 3500 includes an integrated keyboard that differentiates it from pen input-only tablets by Fujitsu and ViewSonic. This hybrid approach marries the traditional ultraportable notebook design with WinXP-Tablet operating system and a pen input display. The display can be repositioned to hide the keyboard and appear to be a tablet only type of device.

The largest drawback of the new Portege is that it is thicker and heavier than any other tablet PC. The Portege 3500 is 1.2-inches thick compared to the Fujitsu system, which is 0.88-inches thick. Additionally the Portege weighs 4.1 pounds compared to 3.1 pounds for the Acer system.

The reason why the Portege is so much heavier and thicker than other tablet PCs has to due with its superior processor performance, larger screen, and integrated keyboard. The Portege has the fastest processor of the new tablet PC systems, utilizing a 1.33GHz Pentium III-M processor. The Acer, ViewSonic, and Fujitsu systems all utilize 800MHz Pentium III-M processors, while the Compaq utilizes a 1.0GHz Transmeta Crusoe processor. The Toshiba utilizes a much larger display (12.1") than any of the tablet PC competitors, which all utilize 10.4" displays. In addition to the processor and screen size advantages, the Portege goes all out in the area of expandability with two USB2.0 slots and Secure Digital and CompactFlash slot.

Unlike most of the other tablet PC designs, the Toshiba Portege does not have a docking station option. This may be an inhibitor to corporate customers looking to purchase a tablet PC as their primary PC.

The ultimate success or failure of the Portege 3500 will come to users' preference for an included keyboard. With the exception of the Acer offering, the Portege is the only Tablet PC that permanently weds the keyboard to the display. If users decide that they need this dual entry mode of keyboard and pen input, then the Portege will be a winner. If users become attuned to the pen input and find that they can exist with only pen input in the field then the Portege may not do as well. ARS suspects that users may be slow to jump on the pen input-only bandwagon thus providing the Portege a window of opportunity.

Specifications

Strengths
• Performance - Given the fast processor and large hard drive, this tablet leads the pack in performance
• Expandability - USB 2.0, Compact Flash, SD

Weaknesses
• Size - This system is thicker and heavier than every other competitor.
• No docking station

HP has joined the Tablet PC initiative with the introduction of the Compaq TC1000. HP is offering a hybrid design which features one of the more innovative design concepts seen in the tablet PC space. The TC1000 be used with a detachable keyboard and comes standard with a display that can be swiveled similar to the Toshiba Portege design. The difference between the Compaq and the Toshiba is that the keyboard is integrated into the Portege design and cannot be removed, whereas the Compaq system can completely rid itself of the keyboard component. The complete removal of the keyboard component allows the Compaq to get down to a system weight of 3 pounds and a thickness of 0.8 inches.

In addition to the radical industrial design, Compaq has also ventured outside of the bounds with the processor choice. The new Compaq tablet PCs will utilize the Transmeta Crusoe 5800 processor operating at 1GHz. The other four vendors are all utilizing the Pentium III-M processor. Transmeta is still considered a "fringe" processor choice within the commercial market place and thus this system may see some hesitation in larger accounts. However, ARS suspects that the vertical markets that will initially jump onto the tablet PC bandwagon will be fairly open to non-Intel processor choices. These types of entities already have thought out side of the box to purchase a tablet PC in the first place, and there is no reason to believe that this thinking will not extend to the processor choice.

Compaq is offering a docking station as an option for the new tablet PC system. The Compaq docking station, similar to an offering from Fujitsu, allows a user to stack the tablet in an upright format where the tablet can act as upright LCD display. The docking station includes port expansion and the ability to add optical drives. The docking station is pricey at $299, which does not include any optical drives. A MultiBay combination DVD/CD-RW drive can be added for $299. The Fujitsu docking station with a combination DVD/CD-RW drive goes for $350.

The optional keyboard mentioned above sells for $129 and is not included in the pricing below.

Specifications

Strengths
• Industrial design
• Long battery life

Weaknesses
• Performance: The Crusoe processor lags the Pentium III-M processors

Acer has taken one of the more conservative approaches in its introduction to the tablet PC market place. The TravelMate C100 utilizes a standard notebook design that simply swivels and flips. This is similar to the approach utilized by Toshiba with its Portege Tablet PC.

Like the Toshiba, the Acer's weight suffers due to this design in comparison to the other tablet PC designs. The Acer weighs 1.16 while the Compaq system weighs 0.8 pounds.

The new Acer utilizes an 800MHz Pentium III-M processor with 256MB of RAM, 20GB hard drive, and a 10.4" display. The price for this base system is $1,999.

Acer does not offer an optional docking station for the TravelMate C100 but does include an external USB CD-ROM.

In order to promote this new product Acer is offering a $100 mail-in rebate with the purchase of any C100 system through January 15th of next year. Users that purchase any Acer LCD monitor with the C100 will receive a $200 mail-in rebate instead of the $100 mail-in rebate.

Detailed specifications and pricing for the new TravelMate C100 system are included below.

Specifications

Strengths
• Attractive pricing

Weaknesses
• Size - heavy and thick
• No docking station

Summary

The success and failure of each of the new Tablet PC products highlighted above rests in the hands of the users and how they embrace this new technology. The big question that all of the Tablet PC makers are anxiously awaiting is how important keyboards are for Tablet PC products Keyboards have been the one constant in the personal computing market since its inception. The Tablet PC initiative challenges this. Can PC users live without a keyboard? Most agree that the answer to this question is clearly "no". All computer users need some type of keyboard entry and thus all of the above products either have a docking station to which a keyboard can be attached or have an integrated keyboard that can be folded away when desiring to utilize only the tablet form factor. But can users live without a keyboard some of the time? Acer and Toshiba think that answer is "no" and thus have integrated keyboards into their devices. ViewSonic and Fujitsu think that the answer is "yes" and are offering devices that do not have any keyboard integrated. HP is hedging its bets by including a detachable keyboard that allows for both views.

For the short term, the keyboard-less products from Fujitsu and ViewSonic may hold the advantage due to the fact that vertical markets that have purchased tablet PCs in the past will be the first to market for the newly introduced devices. These verticals have specific needs to fulfill and are not caught in the paradigm of having to consider general notebook users needs and desires. As this initial round of purchasing shifts to the more general market, ARS expects the hybrid type of devices will take hold as IT managers look to add "Pen Computing" as just another feature of standardized ultraportable notebooks without wanting to give up the keyboard. This shift favors systems like the Toshiba Portege and the Acer TravelMate. How long this shift will take is perhaps the most important issue for vendors like Toshiba and Acer.

NEWS

Q&A with Dan Freeman, Zones Inc.
By ChannelMedia Staff

Q. How are things going at Zones?

A. A lot of great things are going on. Zones always used to be known as that Mac reseller up in Seattle that took inbound catalog calls. Our Mac business is still as strong as ever, but now the majority of our sales come from PC products via outbound sales. This has happened because Zones made the decision a couple of years ago to go after the SMB market. It was a daunting task, but now the strategy is really paying off. We're strengthening our outbound sales force and operationally we're the most efficient we've ever been. Zones is growing and profitable which is proof that our business model is working.

Q. What do you have planned for Q4?

A. Our primary objective is just to continue executing on our business model. Like most companies, especially in this industry, we have cinched our belt over the past year-and we have really found where we can execute efficiently. Zones is in a great position where we can ramp up volume while maintaining low operational costs. We hope to do that this quarter and continue to do that as IT sales are slated to pick up steam over the next few years.

Our focus is to offer our customers value by lowering their IT procurement costs through a low-cost operational model and by reducing administrative costs for them. We offer automated procurement through ZonesConnect™ and can provide all their IT needs through a single source unlike a VAR or Manufacturer. Zones offers the highest level of customer care in the industry and by developing proactive partnerships with the businesses and enterprise clients we serve, we're winning over business from our competitors.

Q. What are going to be the hot categories or products?

A. What I think we'll be seeing is the maturation of a lot of previously hyped solutions. There are a number of really cool ideas that are finally reaching practical application and we expect to see strong demand.

Wireless networking There is a lot of excitement among the early adopters of mobile computing solutions. We are seeing the next wave approaching, when a broad array of businesses will adopt and upgrade. The issue in the past has always been security. The network chain is only as strong as the weakest link. To address this you have to integrate wireless into the total security plan. We are working with businesses to craft security policies and implement firewall solutions at the enterprise level. Then, as more wireless networks are deployed in remote offices these solutions are transferred all the way down to the desktop. With their security fears addressed, medium sized companies will embrace the promise of anytime, anywhere computing over wide-area wireless networks.

Software licensing is enjoying a new resurgence for several reasons: 1) the price savings for business are significant 2) renewals and updates are simpler and 3) the entry point keeps lowering. The qualifying level has dropped to as low as three seats for some products. What's driving it is the power of a desktop server. It's completely viable to have a switched network and mail-server in an office of 3 people. Small offices can look and act like what used to be know as a central office. Because of that, back office enterprise applications are moving down to the desktop and opening the market to a whole new class of licensing customers.

Lastly, I don't think anything is going to get more buzz than Tablet PC. I see it holding great promise toward the goal of convergence. At the same time, a lot of that same technology already exists in Handheld CE's. Companies are using these devices for multiple functions. For instance, helpdesks can track and log tickets as they work, the mobility these things offer opens up a ton of efficiency for any business. We have a lot of our customers deploying Windows CE devices and there's opportunity for more people in the channel to participate in a platform like CE that has an established following.

Q. It seems like Zones is stepping up its b2b efforts too. What's the scoop here - can you do b2b and b2c?

A. Although Zones started out in 1986 catering to the MAC user, the business has evolved to serving the SMB market segment. We still continue to maintain our MAC consumer base but have built upon that by transitioning our focus to SMB. As we see this progression is successful, we've also broadened our service offering to the Enterprise arena as well as growing our Public Sector sales division.

Honestly, it's a challenge to do both b2b & b2c well. This is an extremely competitive market with razor thin margins. Given the slow growth in the saturated corporate PC market, SMBs offer a profit opportunity that Zones is focused on. We are aggressively pursuing it by hiring more dedicated account executives. Washington has the distinction of the state with the highest unemployment rate in the nation. The good news for us is that there are a ton of qualified candidates to hire from and we have been expanding at a rate of 20 reps every 6 weeks. To grow enterprise sales, we recently opened a Chicago sales office. To promote the public sector, Zones has landed several large educational contracts and will eventually do the same with government. Bottom line, yes, we can do both!

The key to success is to drive revenue and leverage the operating cost structure and drive incremental profits. Future growth for the company is based on deeper penetration of the B2B market.

Dan Freeman, is Vice-President of Channel Marketing for Zones where he lives and breathes product merchandising and vendor marketing. Dan is on his second tour of duty with Zones after working at the cataloger for 8 years. He has more than 13 years of experience in sales and merchandising with technology resellers, including Buy.com and Egghead.

This is your source for the latest, greatest news. Plus, it's free. All from your friends at Vision Events and Newman Media. Click here to subscribe.

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SELLING AT RETAIL

Enhancing Retailer Relationships Through Point of Contact Marketing
By Mark Dean, BDS Marketing

Chapter 6 from "The BDS Guide to Point of Contact Marketing"

At the height of the dot-com boom, it wasn't uncommon to hear pundits seriously question the long-term viability of retail. Having examined e-commerce business models, these futurists reached a startling conclusion: manufacturers selling via the retail channel would sooner or later succumb to competitors that eliminated the middle man and relied exclusively on Internet-based direct sales.

To paraphrase Mark Twain, the death of retail was greatly exaggerated.

Today, the power and influence of retailers is stronger than ever, and manufacturers - including those with significant e-commerce capabilities - are putting renewed emphasis on maintaining and strengthening relationships with these crucial business partners.

As a result, our clients often seek Point of Contact (POC) Marketing programs that not only reinforce brands and boost sell-through, but also generate retailer goodwill. We begin with a basic premise: the manufacturer-retailer relationship is not adversarial…or at least it shouldn't be. The parties share an array of common interests. Both want to move product, make a profit, strengthen brand identities and deliver value to consumers. So every campaign should reflect a "win-win" emphasis.

An increasingly common component in our POC Marketing programs is the provision of in-depth training for retailer employees (typically sales associates). While this tactic offers obvious advantages to the participating manufacturer, it also benefits retailers. A professionally trained sales person can enhance the consumer's experience, attract repeat business and substantially increase the total ticket out the door.

A solid training program should teach the sales associate how to move product while simultaneously boosting customer satisfaction. Graduates of such a program can warm the hearts of retailers with their ability to:

An essential part of our training involves helping sales people take a consumer-centric approach to selling. For example, while it's important for them to become thoroughly familiar with the technology, it's even more essential to avoid overwhelming the consumer with technical jargon and specifications. Instead, we suggest beginning with a series of questions that enable the sales person to quickly ascertain both the consumer's needs and his or her level of product knowledge. He or she then can direct the consumer to products that meet those needs, focusing the discussion on issues the consumer considers relevant.

While retailers recognize the value of such training, few have the resources to handle it themselves, especially in light of notoriously high turnover rates among retail sales associates. Because of this turnover, manufacturers that decide to implement a training regimen need to commit to an ongoing program. They also should not limit training to their particular product or brand, but rather help trainees gain an in-depth understanding of the entire category.

Another way a manufacturer can bolster a retailer's bottom line is by actually stationing its own sales representatives on the retail floor. Most retailers appreciate having extra people available to help serve customers - especially when both compensation and training is borne by someone else. There are caveats, however. A manufacturer's representative must demonstrate the highest professional standards, for example by never denigrating competitive products. In fact, reps that take a category sales approach are the most valued by retailers. And well trained professionals always remember that they are guests of the retailer…and act accordingly.

There are several other ways a manufacturer can strengthen relationships with retailers, some of which we've discussed in previous articles in this series:

Of course, these tactics will do little to improve retailer relationships if the manufacturer neglects the basics -- like supplying retailers with competitively priced, high quality products with attractive features and benefits. Meeting delivery dates. Providing adequate funding for promotions, advertising and other marketing activities. Maintaining intimate familiarity with the competitive environment. Understanding each buyer's personal challenges and goals. And living up to commitments.

Establishing and maintaining solid, trust-based relationships with retailers is easy - at least in theory. But making it work takes energy, resources, and most of all, commitment. Our clients have found that it's an investment worth making.

One more thing: We emphatically believe that it's equally important for retailers to concern themselves with strengthening relationships with manufacturers. But that's a discussion for another time.

Mark Dean is founder and president of BDS Marketing, one of the nation's leading sales and marketing service firms. Founded in 1984 as a field marketing agency, BDS has since helped pioneer the field of Point of Contact Marketing and today delivers measurable results for clients such as AT&T Broadband, Motorola, Philips Electronics, Xerox, Sharp Electronics and Canon. Contact: (949) 472-6700, ext. 1232, or mark.dean@bdsmarketing.com.

This article is the sixth in a series entitled "A Road Map to Sell-Through: The BDS Guide to Point of Contact Marketing." To view previous articles, please click on a link below.

Previous Articles
Article 1: Driving Sales While Building Brands
Article 2: The ROI Imperative
Article 3: Professionals Only, Please: The Essential Role of the Field Staff
Article 4: Information at Your Fingertips: The Power of Field Intelligence
Article 5: A Sales Spike is Not Enough: Gaining Maximum Impact from Promotional Marketing

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RESEARCH

Fraud Will Cost Online Retailers $500 Million During the Holidays
By Avivah Litan, Gartner

A new Gartner survey highlights an enduring challenge of online retailing: credit card fraud and suspect transactions, which will cause U.S. electronic retailers to lose about $500 million during the 2002 holiday shopping season.

Event: On 3 December 2002, Gartner released the results of an October 2002 survey of 25 of the largest US e-tailers. The survey indicated that US e-tailers will lose nearly $500 million during the 2002 holiday shopping season due to fraud and suspect transactions. Gartner bases its conclusions also on a survey of more than 50 leading e-tailers in June 2002 and on GartnerG2’s projection of $15.66 billion in US online sales for 4Q02.

First Take: Missed sales opportunities cost e-tailers two times more than losses from completed but fraudulent transactions. Credit card fraud causes e-tailers to lose about 1 percent of their transaction volume and sales revenue while e-tailers reject 6 percent of consumer purchase requests because they look suspicious. As e-tailers move aggressively to weed out fraudulent transactions, the 6 percent of sales that e-tailers reject represents $950 million in revenue for 4Q02. E-tailers likely mistakenly reject about one-third of that amount, or 2 percent of total sales, due to unfounded suspicions and therefore lose about $315 million in sales. Fraud will cost e-tailers another $160 million in 4Q02.

Fraud attacks have become more sophisticated, frequent and menacing. Despite concerted and increased efforts to curb online fraud, the rate of fraud has stayed constant at about 1 percent since mid-2000, when Gartner first started surveying online US merchants. Moreover, 7 percent of 1,000 online adult consumers surveyed by Gartner and Harris Interactive in September 2002 reported being victimized by credit card fraud in the preceding 12 months — a jump of two percentage points from 2001. Parallel fraud-fighting efforts in the physical world eventually led to fraud rates of less than 0.06 percent. Online merchants do not have as much success since online fraud is easier to perpetrate. With online holiday sales likely to increase 32 percent from 2001, fraud attacks have increased at a similar rate. Reducing fraud and the number of unnecessarily rejected transactions remains a challenge that risk-management departments still must solve. E-tailers mainly rely on their own resources to survive increasingly malicious fraud attacks. Gartner recommends a three-tiered program:

Analytical Source: Avivah Litan, Gartner Research

Recommended Reading and Related Research:

RESEARCH

Redefine Your Customers’ In-Store Experience With Technology
By Gale Daikoku with Hung LeHong, Gartner

Viewpoint

New technologies can help to redefine retail stores for competitive advantage in the near-term. Warning: Technology innovations are blurring the lines between enabling shoppers and impeding them.

Dynamics

Predictions

Recommendations

Dig Deeper

• Related Research from GartnerG2
• Gartner Core Research
• Methodology

Viewpoint

New store technology: Enabling tool or customer barrier?

Some retailers envision that personal electronic devices will help their customers shop their stores in the future. Through these wireless devices, the retailers will be able to interact with customers as they shop. Today, interaction usually takes place only at the checkout.

That technology exists today. A few forward-thinking retailers are already testing wireless tablets attached to shopping carts and handhelds lent to shoppers during their visits. But is a technology-enabled shopping experience what customers want? Will in-store technologies be a positive or a negative competitive differentiator? Enhancing the shopping experience rather than creating barriers must be the goal of good store design. As in-store technologies become more sophisticated and affordable, core customers’ needs may be overlooked. For example, if the core of a retailer’s shoppers value speed and low prices, technology should be applied to create the fastest and most efficient checkout possible—rather than to creating a “hand-holding” shopping experience.

It’s possible to go too far with in-store technologies. Technology innovations are blurring the lines between enabling customers and impeding them from shopping in your stores. Invest wisely.

Dynamics

Redefining the in-store experience: A two-part approach

Much of the investment and effort in redesigning the store environment has focused on layout and visual merchandising, with in-store technology confined mostly to basic sales associate tools and point-of-sale systems. However, a growing number of devices promise to change the shopping experience with as much impact as a store layout change.

Many retailers are cycling through another wave of store infrastructure investments, led by upgrades to point-of-sale systems. But think about how new in-store technologies could change your store environment: What will the store environment look like five years from now? What will your competitors’ store environments look like in five years?

Envisioning your “store of the future,” keep in mind that two elements can significantly change the shopping experience:

How retailers deploy technologies in these two areas will shape the next-generation stores.

Part 1: Rethink customer interaction points

The business benefits of rethinking the store environment require you to expand your imagination beyond today’s current retailing reference points. Producing new in-store experiences by redesigning customer interaction points may capture new customer opportunities and growth. Retailers must think outside the traditional planning box about how they meet, greet and serve the customer in their stores. Improving the selling environment and the purchasing process gains a degree of differentiation to counter the commoditization that leads to price competition.

Retailers are experimenting with ways to better interact with customers while they shop. The approaches have two main characteristics:

Part 2: Improve store operations

The most visible way to improve the shopping experience is via customer interaction points. Equally important, though, is to make sure that basic store operations run as intended—that merchandise is in stock, prices are marked and charged as advertised, and assistance is available to customers when required. In-store technologies can also help retailers with these operations.

Create a store experience that delivers the right value

Any combination of retail technologies can be deployed, but not all technologies will work for all retail settings. And deploying in-store technologies to consumers or sales associates changes the in-store experience. Clearly, customer values must guide retailers.

Answers to these two questions inform your first step toward choosing technologies to change the store environment. Figure 1 represents a decision framework that can help retailers choose the right store experience based on what their customers value. The framework is applied to the point-of-sale experience in the figure but can be applied equally to any portion of the store experience.

Customer perception and response is an important consideration

The most critical factor is the impact of the customer interaction with the technology itself. A badly configured or out-of-service kiosk or checkout lane tells customers that the technology is inferior to other options available. A blank ESL or an associate who is unable to finish a transaction or a query on a wireless device actually creates obstacles for your customers. This in turn creates a negative impression about the store experience that may prevent a customer from shopping at your store again, especially if the process or technology itself is too intrusive, too inconvenient or takes too much of the customer’s time.

Technology, coupled with associate training, will increase your total transaction accuracy and best leverage your in-store labor force. If any technology cannot be delivered and supported by your organization—especially your store-level personnel—you will actually do more damage to the customer relationship and your brand represented by the total instore experience. Once a customer has a bad experience with technology or associates in your store, you may never see that customer again.

Predictions

Recommendations

• Define your core customer strategy, then invest only in store technologies that will support your future customers. Rolling out new technology to see if customers embrace the changes will not provide the return on investment you will need to support your in-store experience. Customers who value speed and transaction accuracy will only care if you consistently deliver that expected experience upon every visit. Providing too much intrusive technology or information during the transaction phase may actually repel your customers directly into the arms of your competitors. Plan wisely and create dialogue and feedback loops with your customers in order to monitor their response.
  
  
• Implement store technologies that directly drive sales transactions first, followed by technologies that focus on customer service. To generate a favorable and tangible return on investment, start with in-store devices that tie directly to sales transactions. For example, invest in line-busting capabilities or introduce kiosks that allow customers to generate special orders or purchase from a gift registry. You will be able to track the impact on sales and your customers’ comfort levels with in-store technology. This experience will provide a more accurate perspective when considering customer service-enhancing technologies that deliver “softer” benefits.

Dig Deeper

Related Research from GartnerG2

Report: Point-of-Sale Is Becoming More Than Just the Point of Purchase
By Hung LeHong and Gale Daikoku (08 August 2002)

Report: Retail Optimization: Making Cents of It All
By Hung LeHong (20 May 2002)

Report: Don’t Pay for Loyalty You Can’t Get in Consumer Packaged Goods
By David Schehr (03 December 2001)

QA: Retail Kiosks Must Balance Service and Sales
By Gale Daikoku (23 August 2002)

Outside sources

Auto-ID Center

Gartner Core Research

Auto-ID Center Addresses Privacy, But There’s Work to Do
By Jeff Woods (05 July 2002)

Summary: The Auto-ID Center is driving RFID standards that could integrate identification and wireless technologies. The Center is working on a privacy architecture, but unresolved gaps may stall deployments.

The Next Hot Opportunity in US Retail: Point-of-Sale Solutions
By Jeffrey Roster (19 February 2001)

Summary: Retailers continue to look to technology solutions to provide an edge in an everincreasing competitive market. This study provides an opportunity analysis of the point-ofsale solution within the retail sector, based on primary demand-side and supply-side research supported by secondary information sources. Key business trends that affect the supply and demand supply of point-of-sale solutions are identified.

Methodology

Research is derived from interviews with retailers and in-store technology providers during June and July 2002. Insights are based on ongoing research in the retail industry, as well as client discussions.

Entire contents © 2002 Gartner, Inc. All rights reserved. Gartner’s prior written permission is required before this publication may be reproduced in any form. The information contained in this publication has been obtained from sources Gartner believes to be reliable. Gartner does not warrant the completeness or accuracy of such information. Gartner shall have no liability for errors, omissions or inadequacies of the information contained in this publication or for any interpretations of that information. Any opinions expressed herein are subject to change without notice.

RESEARCH

Digital Evolution -- the Hybrid Camcorder
By Amber Shore, ARS Imaging Industry Research Analyst

In today's consumer electronics market, consumers want digital imaging devices--such as camcorders--that are easy to use and compatible to electronics found around the house. These prospective buyers have the innate desire for a hybrid digital camcorder that is affordable, compact, simple, and ergonomic. Furthermore, with digital imaging technology in a constant evolutionary state, the idea of a camcorder that features true digital still photo ability that can rival a digital camera has fast approached. Several manufacturers have addressed the desire for a digital camcorder/camera combo with new consumer models just recently announced to the public. These manufacturers are touting the new models--equipped with a 10x optical zoom and 2-megapixel resolution-- as premium products that come complete with premium price points. Consumers undoubtedly find the idea of a true hybrid camcorder attractive because of its ability to take the place of two separate devices. And though the solution is on the horizon, lower prices, consumer acceptance, and retail penetration are the key issues still holding hybrid camcorder saturation at a distance.

The most obvious problem with a camera/camcorder combo device is in the price tag. Currently, a camcorder that offers a 2-megapixel still photo resolution will cost users roughly $2,000. While interested consumers will expect to pay a little more, this premium is too steep considering that a 2-megapixel digital camera currently retails for an average price of $247 and a 10x optical zoom camcorder with flash memory capabilities averages $1,000. The present pricing landscape is essentially encouraging consumers to buy the two imaging devices separately because consumers know it is possible to get 2 reliable models for less money than it would cost to purchase one hybrid unit. For now, a $2,000 combo device is overpriced; in order for these multitasking camcorders to sell successfully in today's market, the model cannot be more than approximately $200 above the combined price of the two separate devices. Although some early adopters will currently pay the premium in order to tap into the most current trends, this pricing will not last long as digital imaging further permeates the market and the price of digital cameras and digital camcorders continue to drop.

If manufacturers can play their cards right, pricing the models competitively should not be a long-term issue. As with the profits to be made in the printer business with downstream revenues from ink and paper, consumables are a gold mine in the digital camcorder business. One way to curb the initial hit of lower prices of these camcorder combos is in consumable sales. The more integrated these devices become, the more camcorder tape and flash memory consumers are going to buy, hence more profit in downstream media sales. As megapixel resolutions continue to improve in digital camcorders, consumers are more likely to invest in larger capacity flash memory cards--and will depend more on their camcorders for capturing sentimental photo moments.

Manufacturers can also tap into boosted sales of video and still photo editing software. By fusing both in one kit, users can create slide shows, edited video, and DVDs for a few dollars more than the price it would cost to purchase separate software kits, making it far more affordable to construct personal masterpieces. This also means that customers will be eager to research and invest in editing bundles that are pricier than the free-after-rebate kits offered by manufacturers such as Canon and Sony.

With increasingly simple editing kits that combine photo and video projects comes the ease of creating and recreating in the privacy of one's own home. The simple fact is that as prices for these units decrease, consumers will innately find it more attractive to purchase a digital video solution such as a camera/camcorder hybrid. Based on the belief that users are able to record, capture, edit, and share sentimental moments of their lives with loved ones in different ways than before, consumers can keep in touch without the weight of a pricey credit card bill.

However, beyond cost and revenue earnings, the question of whether users today are truly ready for a camcorder that takes true-to-life still photos remains. If manufacturers can keep the technology easy enough for the novice enthusiast, sales of hybrid camcorders will undoubtedly hit astronomical proportions. Moreover, though it is inevitable for these models to be the wave of the future, too many bells and whistles tacked on in an effort to justify the price premium will be a turn-off. Today's consumers are sophisticated and want imaging devices that are both reliable and simple to navigate. Models packed with the newest technologies are not the key to success; it is the devices that compliment today's fast-paced lifestyle that will lead digital imaging to new--and exciting--horizons.

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COMMUNITY

Changing Channels: How to hold on to a channel
By Steve Cross

Last month, channel problems hit the mainstream again. The October 14 issue of Forbes (p205) has a marvelous story about Schwinn and their channel challenges.

Seems like Schwinn hit the wall on increasing sales through their boutique dealers, so they examined the idea of entering the mass market...Wal-Mart, etc. Just like many of us have done when we decide to expand distribution or retail presence in hope of picking up additional revenue.

Here's what they decided to do; build a new model for the mass market. Sounds familiar doesn't it? Leave the prestige brand in the boutiques, but sell a cheaper model in Wal-Mart. How many of us have done that, or at least considered it? A lot, I'll bet.

However, there are indeed consequences to every action in life. Schwinn has now lost over 1700 of their dealers (out of 3,000). Of course the company claims that those remaining dealers sold 80% of the bikes. We'll see. On the face of it, at least, I am in full agreement with the principle.

They could have done it better, however: establish a new line with a new name, i.e. BullRider built by Schwinn. Calm the current boutique channel by pro-actively approaching the channel partners and telling them your plans in advance. This should help you hold your channel together while you take heat. Market the heck out of BullRider in the print media that is read by your target customers (figure out what Wal-Mart buyers read, probably TV Guide). Let normal attrition diminish your boutique dealers over the next year or two. Increase the level of support to your remaining boutique dealers, with some sort of value-add...maybe sales training classes paid for by Schwinn, or Schwinn paid-for in-store selling events, etc. Hold tight to your current channel by marketing the top line upwards. Build partner loyalty by showing your loyalty to them (with money, as there's no finer way). That's the right way.

I suggested a similar program to a guitar manufacturer three years ago. They rejected the recommendation. They continue to languish. Too freaking bad.

For consulting and advice, reach Steve Cross at steve@crosschannel.com, 702-492-7472. Read his book "Changing Channels" at http://www1.xlibris.com/bookstore/bookdisplay.asp?bookid=16152.

COMMUNITY

Help Desk - Solve the challenges of Vendors and Resellers product content management

The Challenge

Providing quality product information throughout the sales process has always been a fundamental component of a successful sales strategy. For each product, Resellers require spec sheets, images, set up information and product update announcements. They use this information to properly display product on Web pages, populate sales systems and create print advertising. Vendors have the unmanageable responsibility to identify and communicate with all Resellers presenting their products.

In turn, Resellers must collect product information to support their sales and consulting activities. Searching for hundreds of Web sites, navigating each one to find the product information they need, then re-formatting each individual manufacturer's data leaves many opportunities for inaccurate, incomplete information. Resellers cannot possibly afford to properly display every manufacturer's product using these methods. (Research shows it costs a reseller $65 to collect information, re-format and present each product on the Web) Distributing and collecting this information is a costly and never ending task.

Dave Derse, President of i-comply, states, "A collaborative distribution point for product information is a resource that this industry needs. Vendor Verified Accurate product information in a centralized data repository will be the first source that the sales channel uses to support their sales and marketing efforts."

About I-comply

I-comply provides a simple, cost effective solution to Vendors and Resellers that solves the challenges surrounding product content management. A centralized database provides Resellers with free access to multiple Vendor's product information in a standardized format. Vendors provide product information for posting on I-comply I-comply product experts enter the data, the Vendor verifies it for accuracy then it is posted on i-comply's Website for access by the reseller community. They track reseller visits and provide reporting back to the Vendor on who is using their product content, how often it is viewed and market segment penetration.

Resellers gain easy access to complete and Vendor Verified Accurate product information provided in a consistent format. They can easily find the products they need from a single Web site or access i-comply's XML based database for live data feeds. Proactive updates provide information on new product launches, Vendor supported promotions and product enhancements. All free of charge.

"We have found that no matter how the Vendor is currently distributing product information, our services can save them money" said Derse. "A collaborative environment allows each participating Vendor to benefit from a centralized distribution point providing direct IT feeds and Web based retrieval to a confirmed active user base. Overwhelmingly, Resellers prefer a centralized source for product information. Easy access to images and specifications improves the quality of product presentation."

Resellers simply go to i-comply's site at www.i-comply.net and register for free access. Vendors pay a small posting fee per product and receive free reporting on the use of their content.

I-comply provides Vendors a free survey of their current product representation on a sample selection of Web sites. This allows a Vendor to quickly access effectiveness of current distribution practices and the quality of their product presentation on-line. To learn more about this unique service and how you can participate, visit their site at www.i-comply.net or contact David Derse at I-comply (714)996-8681 or dderse@i-comply.net.

COMMUNITY

Putting Digital Photos on DVD: The Next Wave in Consumer Excitement
By Paulien Ruijssenaars, Pinnacle Systems

The Next Wave in Consumer Excitement
As sales of digital video cameras, digital video camcorders, and accessories continue at a record pace, new products and applications are entering the market to fuel this $11 billion a year market. According to recent reports by the Computer Electronics Association (CEA), camcorder sales for the year 2002 alone will total more than 5.3 million units and will bring the household penetration to nearly 40 percent. Photo specialty retailers looking for the next wave in consumer excitement will find numerous product opportunities in the digital video market.

An exciting new opportunity for photo specialty retailers has emerged with the widespread acceptance of DVD players. This year, the worldwide installed base of DVD players will reach nearly 200 million units; in two years, it will exceed 300 million units. Ernst & Young estimates that nearly 50 percent of US homes will have DVD capability by the end of the year. DVD players represent a ready and capable platform for the display of photos and videos and promise to bring a level of quality and interactivity never achievable with film or tape-based systems.

Just as consumers determined that the time was right to make their own custom audio CDs of their favorite music, they are now exploring ways to go beyond Hollywood offerings to make their own custom DVDs using their digital camcorders and digital still cameras.

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