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A wide open channel strategy was a natural complement to Ray’s emphasis on hardware independence. Novell was a company in a hurry. If it was to succeed in its bid to dominate the market, it would have to push its products out through every available channel.
Judy remembered the drive to get NetWare available anywhere and everywhere.
Starting at the same time, we started hammering away at every single distribution channel. Because we felt that if we could get NetWare into everybody’s hands and everyone selling it, then everybody would have it, then that would increase the market share.
That was definitely very, very key to the success of Novell—of being in all these distribution channels. You could get NetWare anywhere. That was the slogan that we had internally: “NetWare Anywhere”.
In 1984, Novell opened four sales offices: Three in the United States (California, Virginia, and Texas) and one in Germany. Ray and Harry continued to establish relations with resellers and distributors in the US and abroad. By the end of 1984, Novell had 15 US distributors and 15 foreign distributors.
Ray also tried to get national computer retail stores to carry NetWare. In 1984, he succeeded in obtaining agreements with two chains, Businessland and ValCom.
From January 1983 through 1984, about 80% of Novell’s sales were made to distributors and dealers. By the end of 1984, however, Novell had opened up channels through OEMs and retail chains in addition to making direct sales to major accounts. Two years later, by the end of 1986, only 59% of the company’s sales came from distributors, but by the end of 1988 distributors still accounted for 55% of sales.
Balancing multiple channels is a fine art. Novell got away with courting multiple channels in the early days because no one knew what a PC-based network was—it had no pre-defined “slot” in the many channels for distributing computer equipment. It wasn’t “obviously”:
Rather, it could be any of the above. So a lot of different kinds of businesses were willing to try reselling NetWare.
But there was one channel that all these others knew conflicted with their channel. That was the “selling direct” channel: Novell company representatives contacting end users directly and trying to sell product without using middlepeople.
Selling is an expensive process. Half the price of a typical product sold off a retail shelf goes to pay for the selling process. This means that there is always a temptation, by selling direct, to internalize the sales effort and collect that revenue as profit rather than hand it off to another organization as a cost.
One obstacle to selling direct is that building a sales force is expensive. Salespeople won’t work for peanuts. If they’re making peanuts, they’ll move. It takes time to recruit and train good salespeople, which adds cost, and they like impressive surroundings so they can impress customers, which adds more cost. And these are upfront costs—the kind hardest on a fast-growing company.
Distributors are important to the sales channels because they are adept at taking a trained and in-place sales force and redirecting it rapidly from one product to another. They off-load part of the burden of maintaining a sales force from the manufacturer.
Direct sales is not only expensive to establish, it makes a statement to the other channels. Many of those channels, for good reason, see direct sales as such a hazard that they won’t cooperate if a manufacturer is “going direct”. They see those direct salespeople as cutting into or skimming the cream off their business.
Still, with half the price of a product going to the selling process, Ray was not immune to the continuing temptation to internalize more of that revenue stream. The issue of selling direct remained controversial. It is the heart of the NetWare Centers controversy that gets covered in Chapter Seven.
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