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At Vegas Consumer Electronics Show, Microsoft, Dell aim at consumers, not the channel

At Consumer Electronics show in Las Vegas, big vendors showed home networking equipment, and how to make sophisticated technology services a lot easier to use.

If there was anything consistent about the product news at this week's Consumer Electronics Show (CES) in Las Vegas -- other than that TVs get bigger, phones get smaller and that it's always possible to squeeze one more gadget or speaker into cars that already have too many of both -- it's that IT vendors accustomed to selling sophisticated gear through the channel to businesses are trying to do the same thing for consumers.

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The problem is that there isn't much of a channel designed to install or support those sophisticated products, according to both the analysts and the vendors involved. And the business models that would allow anyone to do it profitably are still being developed.

Read about big-vendor/small-customer announcements at CES.

The tables have turned in the IT business, according to both Cisco Systems Inc. CEO John Chambers, and Dell Inc. founder Michael Dell. Rather than forcing consumers to try to keep up with technology, demand from consumers is forcing IT vendors to take off in new directions.

Consumers demand the ability to find and connect digital music, movies, TV, games and more traditional media to devices all over their homes, their pockets as they move, and their cars as they travel, according to Chambers, who refers to Cisco's definition of the phenomenon as the Human Network.

"This is going to start at home, but it will come into the business environment, and pretty quickly, using the same underlying architecture," Chambers said in his presentation at CES. "There is a market change occurring that is going to be driven across the board."

"This is going to change the picture on digital content and change the revenue streams for both content providers and service providers," Chambers said.

In his keynote at CES today, Michael Dell confirmed the need by major vendors to focus on consumer IT, but focused on more near-term solutions, including a new Dell PC-based media suite and a new online service called Dell Data Safe online that will allow Dell customers to back up data to Dell's network ,rather than to storage devices on their own.

Microsoft Corp. also announced a home-networking product, the Home Server, which company CEO Bill Gates described as a way for consumers to connect all their PC, gaming and electronic-media devices, automatically back up their data, and provide secure remote access to their own PCs across the Internet.

None of the three said who would be installing, integrating and supporting that technology.

In response to a specific question from after his talk, Chambers said Cisco will continue to rely on the channel for most of its revenue, including sales to consumers. However, Cisco's Linksys division, which makes the bulk of its consumer technology, sells primarily through distributors and retail outlets.

The most obvious candidates to step into the gap between the sell-and-forget retail market and sales that require more design and integration are retail outlets with some on-site service capabilities such as Best Buy, according to Kent Scherf, principal analyst for emerging-technology markets research firm Parks Associates in Dallas.

Traditional vale-added resellers (VARs) tend to ignore the home market because of the high labor requirement and low margin of a single home install.

Best Buy -- which Piper Jaffray predicted would bring in $1.1 billion in revenue this year from its 12,000-person Geek Squad service arm alone -- has the best position, though Circuit City's Firedog and other competitors are ramping up their efforts as well, he said.

"But I don't think Best Buy is going to be able to handle this and I don't guess that the [telecom] service providers are going to want their trucks out there," Scherf said. "It's a matter of getting feet on the street and the service providers are pretty hesitant to do that."

Home-network support costs could run a service provider $400 million per year -- a burden none take on willingly, Scherf said.

"I just think there's a huge opportunity for companies to come and help solve this, and not just Geek Squad, though they are providing a terribly valuable service," he said.

Hewlett-Packard Co., Dell and other PC vendors are offering various telephone and remote-support options, but they're not enough, according to Ken Smith of home-networking and service specialists Peak8Solutions in Lafayette, Co.

Selling to and supporting consumers can make sense for traditional VARs, if they invest in remote access and diagnostics, and ramp up their phone support to cut down on expensive service calls.

"With software to tally everything they have on their network and remote diagnostics and phone support, I can fix your problem on the phone about 90% of the time," he said. "In five years of consumer service we had to roll the trucks maybe 5% of the time."

Using software that can identify a customer's networked equipment and the components in it also presents a golden, ongoing opportunity to sell upgrades to a customer who already trusts you and whose business you already have, he said.

"I can fix a problem by phone, then say 'you know, you're not getting the kind of performance you should in your game, even with that high-end Dell; your PCs are good, but your router is four years old and if you want to improve performance, you might want to look at that,'" he said.

"When you're just the help desk, no one wants to talk to you, but if you introduce a different business model, based on knowledge of the client, with a potential upsell in addition to your break/fix, then add additional services on top of that, now you're talking about something interesting," Smith said.

The Best Buys of the world can adapt to that and expand their service beyond "wanting to sell you something and never wanting to see you again," Scherf said. But for traditional VARs, it would be a leap to gear up both their technical and sales staffs to accommodate a consumer market.

"Some channels will be able to migrate smoothly into the home and some will not," Chambers told "We're in the business not only of generating revenue for partners, but also profits. We'll encourage them into the most effective market areas for them."

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