PC vendors wage price war

MONTGOMERY, Ala.— With more than a bit of show-biz flair, PC vendors at the annual Air Force Information Technology Conference here kicked off the last, key month of the federal buying season with a price war.

Compared with last year, when competition faded due to the disappearance of Zenith Data Systems Corp. from a market it once dominated, the more than 4,200 Air Force information technology professionals attending AFITC had a wealth of choices targeted at them and their users: the mature Desktop V indefinite-delivery, indefinite-quantity contracts held by International Data Products Corp. and Raytheon Data Systems Inc. and the new blanket purchase agreement (BPA) vehicles awarded in June to Dell Computer Corp. and Micron Electronics Inc.

These vendors pitched a wide array of products backed by promotional efforts that were designed to lure the largest number of potential buyers to their booths. Raytheon Data enticed would-be buyers with its computer cafe, which served up root beer floats along with the company's latest Desktop V offerings from Compaq Computer Corp. and Micron. Micron's give-away of the latest version of the Flight Simulator game on the first day of the conference clogged all the aisles leading to its booth for more than an hour.

Beyond all this hype, Air Force buyers found vendors ready to make excellent PC deals. Bob McFarland, vice president and general manager for Dell's Federal Sales and Marketing Division, said the competition "puts the Air Force in the best position they could be in...with prices and service levels I have not seen before. The Air Force is getting tremendous deals, especially on the BPAs."

Alan Saxton, Micron's Air Force BPA program manager, said that, from his perspective, the BPAs "are putting pressure on IDP and [Raytheon Data]."

Pricing Pressures

Saxton showed buyers what competition means to their bottom line on the first day of the conference last week. Dell came to the conference with a new price on a Pentium II, 400 MHz PC with 64M of memory, a 7.5G hard drive and a 17-inch monitor that undercut Micron by roughly $100. By the end of the day, Micron had its own price change approved, offering a similar system for $1,813 vs. $1,822 for Dell. "I'm always watching Dell's price in order to compete," Saxton said. (See chart.)

Ken Heitkamp, technical director for the Air Force Standard Systems Group (SSG), which manages the service's small computer contracts, said deals such as this show that "more suppliers mean better values.... Users have more choices to meet their needs."

Due to contract requirements for free software upgrades and five-year, worldwide maintenance, the Desktop V vendors had to price their offerings higher than the BPAs, with Raytheon Data selling a similarly equipped Compaq PC for $2,500 while IDP offered its own brand 266 MHz Pentium system for $1,935.

Raytheon Data also offered a 350 MHz Pentium II for $1,820. Tom Walters, Raytheon Data Desktop V program manager, described the 350 MHz system as comparable to the 400 MHz PCs sold by his competitors because both the 400 MHz and 350 MHz Intel Corp. chips use the same high-speed, on-board bus. Because Desktop V comes with software and maintenance upgrades that are not available on the BPAs, Walters said, "if the discriminating buyer looks closely, we deliver the better value."

George Fuster, president of IDP, said the Dell and Micron BPAs have resulted in "very aggressive competition" for the Air Force PC dollar. Like Walters, Fuster also stressed the better value inherent in an IDIQ contract.

Customer relationships matter as much as price or brand name, according to Micron's Saxton. The long-term relationship Micron established with Air Force buyers definitely aided the company's sales efforts on its BPA, he said.

Col. Delbert Atkinson, the SSG military commander, said as of Aug. 31 Micron had outsold Dell on the contract by a better than 2-to-1 ratio, with Micron posting $7.6 million in sales since June and Dell $3.1 million in the same time frame. "We understand the customer better, and we listen to the customer better [than Dell]," Saxton said.

Dell's McFarland said Dell's poor showing in the first six weeks of the BPA contract "was due to our very slow ramp up.... It took us three weeks to get our Air Force Web site up," he said. "All Micron had to do was take its Desktop V Web site and flip it for the BPA."

Now that Dell has its Air Force World Wide Web site operating, Dell has started to narrow the gap with Micron and McFarland expects to close it further before the end of the fiscal year. "But you have to remember that BPAs are not the only way I do business with the Air Force," McFarland said, noting the company has numerous other contract vehicles, including its General Services Administration schedule.

SSG's Heitkamp said the command's experience with BPAs and IDIQs indicate that in the future SSG should continue to offer a mix of contracting vehicles "to meet our customers' needs."