Rebels with a cause
- 20 December, 2000 09:55
Triforce is basically a reseller," asserts Abbas Aly, the company's director. "All we try to do is sell boxes."
The shrewd, daring business operator with an eye for a deal and passion for PC reselling, is at the centre of swirling rumours in the channel after the launch of his latest creation, Sweetwater.
Named after the town in which Compaq was born, the aggregator positions itself squarely between the vendor and reseller. Its niche calling is the ability to offer quick supply of configured-to-order Compaq DeskPro SB PCs and Armada 100s notebooks by the truckload.
Now run by former Compucon sales and marketing director Philip Tran, under the title of general manager, Sweetwater is keen to maintain an arms-length distance from Triforce to avoid obvious industry concerns over conflicts of interest.
But it's Aly's history of aggressive sales tactics, heavily discounted pricing negotiated directly with vendors and rumours of grey marketing that has fuelled the rumour mill.
Behind closed doors or speaking off the record with ARN, some vendors, distributors and competitors make reference to his past as being somewhat shady. But for the self-made man, it's simply a case of different business models, industry misunderstandings and honest competition.
However, what's more significant - and worrying - for the channel, is Aly's alliance with Compaq. Will Compaq ever buy Sweetwater and take its distribution direct? Possibly, but it's time to clear the air first.
Triforce started out as a small reseller in Wollongong focussed on IBM notebooks and PCs, according to Aly. "These guys [IBM] actually said to us [initially] we don't want to do business with you because you are too small'. Tech Pacific even sent me a letter in 1993 saying you are too small, won't be around and we don't want to do business with you'," Aly said.
So claiming necessity as the mother of invention, Aly went to Taiwan, bought a pile of notebooks and rebadged them under the Triforce brand for sale through the likes of Bing Lee.
Eventually the supplier closed down in 1994, leaving Triforce with no spare parts for the poor-performing units. Then, eventually, NEC came to the party and sold Aly replacement notebooks for every customer, a situation that almost sent him broke. Not surprisingly, he described it as one of the lowest personal and professional points in his life.
The business eventually picked up as BHP became a large customer and Triforce became a Merisel reseller. Then Merisel's acquisition by Tech Pacific heralded the company's move to a new distributor and one to which Aly claims he has been loyal to ever since.
Another key component of Triforce's growth was its ability to get a "price break" for large orders through distributors. Aly then passed on the discount by on-selling products to smaller resellers in country areas "because Tech Pacific didn't want to deal with those customers. Triforce has built itself up by taking more of a risk," he said. "It became a form of sub-distribution."
In 1995, Aly attempted to sell Compaq PCs and notebooks, but Compaq initially refused in 1995. "When Compaq said no to us I imported IBM notebooks from overseas, I brought them in from the States, I sold them here. It was an opportunity. IBM wanted to sell them to us and we did that openly in the first two years, 94 and 95," he admitted.
But parallel importing was not much of an issue for Aly. "I know [other] companies [still] doing that," he claims. And what's more, he was only buying up to 30 notebooks, which is "nothing phenomenal". The key for Aly is his belief in "fair play", and if IBM or Compaq wanted to stop him, he'd find a way around it.
"It was a matter of survival. Either you had to get the notebooks or you didn't. But everybody did it. Tech Pacific, even with Imagineering, has an interesting background. They have their own history there [with parallel importing]," he claimed.
But is grey marketing right or wrong? In most cases it's not illegal, but it does defy the exclusive distribution agreements established by most vendors. Aly has his own opinion. "In the past vendors were playing unequal games," he said. "Companies would simply look after their friends."
Aly's beef is that most vendors don't allow "different types of business styles" to operate in the channel. "So yes, in the early stages we had to do what we had to do in order to survive," he said. "The strength of grey marketing is that there is a price discrepancy between one point and another," Aly continued. He believes the solution is for vendors to fix pricing models across the world.
So is Triforce still involved in grey marketing? Not according to Aly.
"Triforce has not imported any product since 1995," he said. With local distribution agreements in place and "99 per cent" of his business with Tech Pacific, it's not needed any more. In addition, he claims the cost of importing large numbers of boxes makes the exercise prohibitive. What's more, vendors track serial numbers. "If I'd done that, wouldn't the vendors know I'd done all these things?"
However, Triforce still operates differently to other resellers in that it continues to purchase stock up front and warehouse it for customers in either its Parramatta or Wollongong warehouses. "All distributors run multi-tiered pricing, so the more volume you buy the better pricing you get," he said.
The focus remains on securing large orders from corporate customers and achieving margins of between 10 and 15 per cent. "If you concentrate on selling, you make more money," he states.
But here's the rub. "When we want to buy something from Tech Pacific we actually ring the vendor and negotiate our pricing directly. Once we have the price, we fax an order to Tech Pacific, we pay Tech Pacific and we get our product," Aly explains. "That's the role of distribution to us."
Knowing full well that distributors hate competition and that this type of operation is likely to raise hackles, he believes the market has room for all types of business models and he is not targeting 100 per cent of the market.
"If they [distributors] are spreading rumours, I find that very childish because at the end of the day, with the volume of business we do, we had the choice to go direct [as a reseller to vendor] ages ago," he said. "I've always supported distribution."
Aly believes there is nothing wrong with his business style, particularly when distributors face contentious issues themselves, such as going direct to the customer.
"I will take a risk and say the distributors we have in Australia will also try to find a way to go direct and sell to businesses," he said.
The other big rumour circulating around Triforce is Aly's so-called family connections. "The only family I have is my mum, my dad, my sister," Aly said in response to claims he is backed by a large, very wealthy family.
"I'll tell you who's funded my business, and you won't hear this from too many people. My business is funded by the National Australia Bank."
The NAB helped him fund the NEC notebook replacement scheme in 1995, and supports his business, despite the fact he's permanently in overdraft.
Aly explains he bought his first house in 1993, and borrowed to the hilt. "I don't have a wad of cash."
The family rumours are just symptomatic of industry misunderstanding, Aly added. Yet misunderstandings aside, Aly confirms his businesses are "still owned by my own family" because that's the way it has always operated - as a family unit.
"I think people misconstrue the use of the word family, or extended family. The thing that annoys everyone about Triforce is they don't know who we are."
All in a name
It could be argued the same issue applies to Sweetwater. Not only did it emerge from nowhere, but the channel is still coming to grips with the difference between an aggregator and distributor.
And now that Tran has joined the company as general manager, Aly is keen to fade out of the picture. Not only does he want to avoid reseller and vendor conflict issues, he doesn't have the time to manage two businesses simultaneously.
"We've got to be careful about competing products - we've put in a lot of time and effort to make this work," Aly said.
Meanwhile, he says aggregation means Sweetwater will "take position on stock. We're not a distributor," he added, stating he doesn't conform to the traditional model.
Tran has his own take on the situation. Configure-to-order Compaq PCs and notebooks are a unique proposition. "An aggregator is basically what the white-box manufacturer is today," Tran said. "We're trying to be flexible, we're trying to cater for the SMB market and we're trying to build to order as well."
Significantly, Compaq is billing Sweetwater as its weapon to convert white-box resellers into Compaq resellers. "I don't think there is a reseller out there who will not sell a Compaq or an IBM," Aly explained.
From Tran's point of view, Sweetwater is out to partner with as many SMB market-focussed resellers as it can find. "The most important thing we want to get across is that we want to partner with small resellers," he said. Tran said Sweetwater does not demand resellers exclusively sell Compaq. But of course, the advantage he offers to resellers is the ability to leverage a well-known brand instead of selling customers on no-name PCs.
And just to get the ball rolling, the company has taken a gamble by buying 3000 new DeskPro SBs direct from Compaq's Sydney assembly plant, some of which they admit have been sold to Triforce customers. There is of course more to the story and, as they say, money talks. When asked if resellers will be able to get better pricing from Tech Pacific on selected Compaq PCs and notebooks, it appears the answer is no. "On the products we aggregate I would be surprised if we are not more than competitive," Aly said. "I think they will find very, very competitive pricing [at Sweetwater]."
So what's looming is a potential price war if Tech Pacific or other Compaq distributors such as Dicker Data attempt to make life difficult for the new entrant. "Distributors know us now and they are going to try and shoot us down," Tran asserted.
But Compaq is still on side. Aly says Sweetwater has "very good support from Compaq" and has established unique terms of trade.
"I think that the reason Compaq go down this line is the terms of trade," he said. "I think vendors are tired of waiting for 90-day payments and rebates. We change that. [Our] terms of trade are far, far better for Compaq.
"I'm permanently in overdraft with my bank. At the end of the day I buy the product, it's in the warehouse, I own it, and when I own it my livelihood then depends on me selling it. We won't return stock."
And no, Aly said he's not stuffing the channel. "Am I here to look at [the product] every day or to sell it?"
Competitive business models aside, the real issue for the channel is now whether Compaq will use Sweetwater to ultimately take its distribution model direct in Australia.
It's an idea Compaq attempted in the US with the $370 million cash acquisition of Inacom and its custom-configuration and order-management capabilities in July this year.
The wholly owned subsidiary it named Custom Edge catered for Compaq's largest accounts that preferred a direct relationship with the vendor. Meanwhile, Compaq CEO Michael Capellas claimed the deal would not affect the US channel, claiming resellers would actually benefit because Inacom's systems meant product supplies would be more predictable and inventories would be lower. Naturally, defeating Dell with a taste of its own medicine was in the back of Compaq's mind too.
However, it wasn't long before the idea backfired and Inacom filed for bankruptcy in June and ceased operations. ARN's US sister publication Infoworld reported it listed assets of $US956.5 million and carried debts of $560.7 million.
Compaq and Custom Edge then filed an objection in the Inacom bankruptcy proceedings, disclosing that Inacom and its lenders have received more than $94 million in funds from Custom Edge and requested that these funds be returned.
When asked by ARN about the possibility of Sweetwater's acquisition by Compaq, Aly quipped: "I wish they would."
He actually believes Sweetwater is not similar to Inacom. "They had other problems. What we are doing is completely different."
"Then again, if Compaq wants to pay me $300 million, I'm for sale right now."
Aly then added very cautiously: "I think, outside the US, Compaq chooses very simply - they don't buy other companies."
Tran is, however, cautiously optimistic: "Two, three years down the track, if it's very successful, I think there's going to be a lot of offers."
The Dell factor
So given Compaq's Dell paranoia has not yet manifest itself in the form of direct distribution, Sweetwater must count on the strength of the Compaq brand to carry its business.
And with Australia's overall reluctance to catalogue-style direct sales unlikely to change, Aly can't see too much of a drive for direct distribution.
"The Australian market is still not adept at buying direct," he claims. "If Gateway was so confident with its direct approach, why is it selling through Telstra stores? Dell's probably the best of the pure direct models, and I don't think the Australian market is there for it."
And where resellers are concerned, Aly believes customers still look for the "old-style interaction".
But regardless of the direct threat, Australia's distribution channel looks set for further changes because of pricing discrepancies around the world, according to Aly.
"I believe in an equal playing field. If Compaq wants to appoint another aggregator [for example] good, let them go and do it. Because if I'm good at what I do then I'll be successful at it.
"Distribution is different, I don't think you can have a lot of distribution or a lot of aggregators, but you've got to have an equal playing field. You can't have mates pricing and the rest of the world pricing. And that's even from distribution to reseller level. If one reseller buys it at a better price than the other, that's not good for business. If I get a break, I want everyone else to have it. It's one thing Hewlett-Packard does not understand," he continued.
"They are very much let's protect our own friends' and that's the approach they are taking. Going back to this parallel importing side, HP allowed its friends to parallel import. If anyone else tried it they squashed them. That's why I say if you're going to give a break to someone, give it to everybody. Loyalty is built on fairness."
So as you can imagine, Aly is not a man who is worried about what the competition or industry thinks about his business model. When asked about Sweetwater's future relationships with distributors, he had yet another parting shot.
"If they are worried about me, that makes me feel like there is an opportunity to do good business. They are making it look more lucrative everyday," he said.
And reality says Sweetwater is still a very small fish in a big pond anyway. The company will soon open a warehouse and its configure-to-order facilities in Sydney's Castle Hill.
Meanwhile, www.sweetwater.com.au was still under construction at press time, waiting for a direct feed to come through from Compaq.
Whatever the future, Sweetwater has set a precedent in tight vendor relationships in a bid to break the traditional distribution model.
"Sweetwater has to be different," Aly mused.