Dean Bellone will forever remember it as his personal Internet 101 lesson. His company, CompSource, was doing just fine selling computer parts and custom-built notebook computers.
But none of the brisk trade in those products convinced him of the essential nature of the Internet. “I was one of those people saying the Internet’s just a fad; I don’t need a Web site,” he recalls. Instead, he took a more conventional approach, shelling out $150,000 for an ad in a national computer magazine. It flopped spectacularly, prompting just a trickle of inquiries.
Meanwhile, his staff was getting dozens of calls for a sound card, an inexpensive personal computer peripheral. These weren’t merely casual browsers, but technically savvy buyers armed with part numbers, calling to place immediate orders.
Bellone soon learned what was happening. “What happened was there were some search engines putting us up as the lowest price [on that product].” Without lifting a finger, the Web had become an important sales channel for him.
Since then, he’s pursued that channel full-bore. Just this fall, CompSource debuted full blown Web retailing, offering 158,000 products through its online catalogue-including instantly downloadable software-from more than 1,000 vendors. Business is booming. Having recorded about $3 million in sales (90 percent of which comes from out of state) in 1997, Bellone is expecting ’98 sales to possibly top $10 million.
“I once thought Micro Experts’ $22 million was unattainable,” he says of a once high-flying, Russian-American-owned computer retailer. Now, says the 29-year-old, shaking his head in wonder, “I’m not so sure.”
CompSource’s story begins, humbly enough, with a mechanic for International Harvester. That’s what Dino Bellone was doing in the 1970s, when his cousin invited him to join his office supply business.
By 1979, the elder Bellone had left to form his own company, United Office Products Co., in downtown Cleveland.
By the late ’80s, his son Dean, then a student at Cleveland State University, was helping. “But I just knew I wasn’t into selling pens and papers,” he says. And so, in 1991, Dean, then 22 years old, went into business for himself, working out of his father’s offices (they still share space, now on Superior Avenue, just east of downtown Cleveland).
Dean dabbled at first, bankrolled, according to some accounts, by his father. He sold Internet access and had part interest in a site-development company with a friend, a Lotus Notes developer. He was also selling custom-made notebook computer systems through CompSource.
Gradually, he began offering customers a wider array of parts, working with distributors including Ingram Micro (a sister company of the book distributor behind virtual bookstore Amazon.com’s explosive growth). His goal was to be among the top three to five in price nationally-which led him to that catalytic encounter with a search engine.
In the back room call center of CompSource’s modest storefront headquarters, a kind of 20-something casual intensity reigns. The dress code is casual and earrings and personal CD players are much in evidence. All but one of the 17 employees is younger than Bellone, who turns 30 in August.
On an average day, about 600 calls come in to the center-the recipient of a new $45,000, 48-line electronic phone system-with perhaps half culminating in orders. While most inquiries are in response to the Web catalogue (the company is only now beginning to distribute 60,000 print catalogues), only about 50-60 of the orders arrive electronically, without the intervention of a person taking a call to answer questions.
Like nearly all online retailers, CompSource is seeing how slow the transition to full online transactions has been, even among the technically literate (only 20 percent of wired adults have made a purchase on the Web, according to one study).
“I honestly thought that online ordering would be a little bigger than it is,” says Bellone. “But I think people are still reluctant. Most would still rather talk to someone, for assurance that this is the product they should get. They might want a sound card, but they still want to know that the guy on the other end of the line that’s been selling 30 a day says, ‘Yes, that’s a good card.'”
Web retailing is built on speed and immediate gratification. For orders received by 4:30 p.m., the company promises to ship that same day. Many customers call just an hour after placing the order, requesting package delivery tracking numbers.
Mindful of the ferocious competition on the Web-which forces sellers to constantly update prices or suffer steep drop-offs in inquiries-Bellone has toyed with the notion of surrendering profitability for a time in order to build market share. Indeed, one online retailing report from a leading Web research organization recommends Web retailers forego profits for at least the next three years in order to increase market share (see box). Bellone, however, thinks two months is about as long as he would retrench on pricing: After that, he says, customers will simply begin regarding the lower prices as the new standards.
For now, his per item markup is anywhere from 2 to 9 percent, and he’s ever-vigilant to squeeze out whatever costs he can. He’s whittled the rate he pays credit card issuers to an average of 1.8 percent, for instance, by lobbying American Express to drop the rates it charges him from 3 to 2 percent. And he’s essentially eliminated credit card fraud, which once ran as high as $40,000 per year, by introducing fraud-protection software on Web transactions. He’s also trying to automate every possible transaction with vendors, all in the service of trying to stay as price competitive as possible. “That [automation] lowers our prices, because if we automate [with suppliers], they’ll push the price lower, since it frees up their sales force,” he says.
Despite his success, Bellone admits the Web’s relentless competition is cause for concern. “Ninety eight percent of Internet companies don’t make money,” he notes. And while he’s now among the lucky 2 percent, “I am really kind of afraid of what the Web will do. I have a competitor who actually charges $2 or $3 above cost. The next step is to take service out,” he says.
That spiral at times leads him to wonder aloud if he shouldn’t have remained in the service side of the business, rather than venturing into the selling of products. But then the Web’s dynamism intercedes once more, and he’ll stumble over another opportunity ripe for the plucking.
That happened late last year, as daily traffic on the CompSource site reached about 75,000 “hits,” or page views. Bellone got a call from a company inquiring about advertising on his site. So now, rather than providing a new sales channel, the Web was presenting CompSource with a new revenue stream it had never considered, let alone pursued. “That,” says Bellone, “just got our gears running.”