The impetus for this article came from an online question, "Where do all these mail-order Macs come from anyway?" A loaded question, and not one I’ve ever seen covered. Being in the channel myself ("the channel" is the business term for the organizations and methods used by computer companies to route products to the end user. It encompasses distributors, resellers, VARs [value-added resellers], and even direct mail), I find all the undercover slipping and sliding and back-stabbing fascinating – and highly influential. The traditional magazines tend not to view such things as interesting to their readers, so I will try to give a brief, "received knowledge" overview. Keep in mind that I work at a dealership, so my bias should be obvious.
Apple’s Authorized Dealership system indirectly provides the impetus for mail order Macintoshes. Apple created its network of Authorized Dealers as a method of efficiently distributing Macintoshes and off-loading support. Ideally, these Apple Dealers would be Mac experts, qualified to turn a PC sale into a Mac sale, and trained not only to assist customers with their first fumbling attempts to work mice and menus, but also to fix a machine should it break down. That was the deal, and Apple implemented any number of plans to try to convince salespeople, most of whom had been selling Apple ][s or Klones or shoes, to learn a little something about the Mac. These attempts at training and Mac-oriented rewards were dismal failures. Most salespeople sold what they knew, and – as has been bemoaned on CompuServe and in the world at large from time immemorial – most Apple-authorized dealers know next to nothing about the Mac.
Well, in lieu of knowledge, how about bucks? A highly effective sales-incentive method rewarded dealers for selling lots of Macs, in the form of "cheaper by the dozen" discounts. The more you bought, the deeper your discount. In such a viciously competitive market, this meant that in order to stay in business, many dealers had to buy far more than they could possibly legitimately sell.
Some resellers then got the bright idea to open their own little side-business at another location and sell Macs to a national audience at cut-rate mail-order prices. The mail-order house’s overhead would be low – no retail location, service department, or salesperson training necessary – so they could dramatically increase volume with only the expenses of telephone bills, personnel, advertising, shipping, and accounting. If the mail order outlet needed even more stock or certain hard-to-find items, it could work out a deal with other resellers looking to reduce inventory and build up their own discounts. Some mail order houses are totally independent of a reseller and simply provide the service for – and get the products from – a number of resellers.
So: dealers over-buy to increase their discounts, and sell the excess to a mail-order house. It’s not exactly kosher, but not strictly illegal either. It’s not the black-market, but the gray-market. Naturally, Apple tries to protect its legitimate dealers and will yank a dealer’s authorization if it finds evidence of this practice. Apple has done this on occasion, but not often as far as I know. Policing costs are high. But dealers do want to be careful, so some dealers will alter or completely deface the serial numbers on the Macs they sell gray-market so they can’t be traced back to that dealer. Be sure to check for a damaged serial number if you buy a grey-market Macintosh because dealers can refuse to provide warranty service for a Mac with a missing or defaced serial number. In the unhappy event that a legitimate Mac has lost its serial number sticker (possible if it was a demo model, for instance), make sure to get that serial number on the invoice so you have a record of it for potential warranty problems.
When I worked with Mac Emporium in New York City I wondered what could be so wrong with having a whole network of small stores stuffed with Mac Fanatics who in aggregate would be incredibly influential in selling the Mac? We all loved it so, you would hardly even have had to feed us; we’d work for peanuts and proselytize our little hearts out. But no. Apple demands an impossible amount of sales (thus further aggravating the need of stores to "move boxes") and has requirements that work against a small neighborhood store becoming authorized.
Thus mail order houses get their Macintosh equipment from Apple. Apple’s dealer and discount policies created this Frankenstein monster of the "reseller channel" and the whole raison d’etre for the gray-market. It fascinates me that Apple has done nothing but slap their monster in the face over the last year. Apple demanded that education resellers stop selling competing (DOS) systems into the lucrative education market. Then they announced that they were taking away "infrastructure" funds, extra money Apple had paid for years for various services the resellers could provide for Apple – and for many resellers the only reason they could stay competitive at such low selling margins. Just recently Apple sold PowerBook 100 4/40s to Price Club at an obscenely low price. Although Price Club sold the PowerBooks at close to half the price the resellers had originally paid for their inventory, Apple kept mum, as if the reseller channel was so unimportant that it didn’t even deserve notice. [It now appears that the dealers will get similarly good deals on other models of the PowerBook 100, so look for prices in the mid $700 range from your local dealer. -Adam] The monster, the reseller channel, that Apple created is clearly about to be kicked out into the world to fend for its feeble, lumbering self, while The Wiz and Circuit City and other consumer electronics outlets – and who knows, maybe even Apple, through its own mail order division – pour Macs to the world at large.
[MacWEEK recently reported that Claris had investigated the possibility of building cheap Macintosh clones overseas and selling them under the Claris label, and apparently Apple is considering either selling Macs directly itself through the mail or authorizing certain existing mail order vendors to sell Macs as well. Apple recently authorized mail order vendors like MacWarehouse and MacConnection to sell Apple software, and some wonder if hardware can be far behind. Interestingly, these places can all sell Macs, but few of them can adequately service or support Macs, which may lead to some changes in dealer programs. -Adam]
Why Apple originally didn’t want to go mail order, why they built the reseller channel, why they did all these things in the way they did is a complete mystery to me. As David Ramsey, in about the harshest criticism of Apple I’ve heard him give publicly, said, "Apple’s marketing folks are a bunch of inept yahoos. Isn’t this obvious after all the years of Apple’s bizarre and self-destructive marketing practices?"
If I were Apple, I’d have gone to any distribution that would take me. Mail order, small dealers, electronics stores – ah! Maybe they didn’t take these venues because they wanted to play with the big boys; they had to combat all that "toy computer" propaganda from priesthood-protecting DOSsers. The marketing concept of "authorized resellers" for computers had been in practice for a long time, and selling the Mac next to a Coleco Adam or a MyFirstComputer display in Sears would have enforced the toy misconception. I’m sure they had some sort of rationale (which would be interesting to hear from an insider).
As I said, this is mostly received knowledge. Not many history books cover this stuff. I expect to be corrected in some aspects, and hope those more knowledgeable will elaborate upon others.
[Do note that this is not a black and white issue. You will find good dealers along with the thoroughly inept ones, and I’m sure we have reputable mail order firms (Maya Computer had a good customer support reputation, for instance) along with those that will take your money and run. We’re not trying to make a judgement call here, but are rather trying explain the situation so you can decide for yourself. -Adam]
MacWEEK — 17-Aug-92, Vol. 6, #30, pg. 1