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Shelf space on demand.

Reluctantly, we have to give the promoters of On-Demand Systems credit for perseverance. Never mind that every previous electronic distribution scheme has bombed. Never mind that major publishers loathe the idea of what is essentially a consignment system. On Demand still keeps plugging away, trying to float yet another high-tech solution to the notorious "shelf space" problem.

On Demand's basic scenario is a story almost as old as Aesop. Pennypinching computer dealers won't invest money to put enough software on their shelves; bewildered users can't find under-distributed titles. Solution: Put a few hundred programs on a CD-Rom disk, sell disk players to stores for $1,995, and let dealers sell "on demand" inventory.

What's wrong with this picture? A few obvious objections come to mind. Retailers still have to find shelf space for boxes and documentation. (On Demand sells packaging at a discount, but we suspect most retailers won't want to tie up any money in packaging for the thousands of slowmoving titles on Demand expects to carry.) And On Demand's terms are strictly consignment--probably even worse than the 90-120 days that conventional distributors offer.

But this is just nitpicking. To us, the real problem with on Demand is that it offers a solution to a problem that is going away by itself.

The fact is, the "shelf space" problem is rapidly becoming an obsolete issue. Hardware-oriented computer dealers, who never had much commitment to software, have already given up much of the marketplace to softwareonly reseller, catalogs, and direct marketers like Corporate Software-resellers whose primary loyalty is to software. These outlets aren't afraid of inventory; in fact, they compete largely on the basis of how many titles they can afford to keep on their shelves. Egghead's Larry Foster recently told us (Soft-letter, 4/15/89) that his stores stock 800-1,000 active SKUs and will probably keep in stock any title that sells even one or two units a month per store. In addition, Egghead processes about 15,000 special orders a month, usually with 24-48 hour turnaround. since anyone who wants to compete with Egghead has to match at least these levels of inventory and service, it's likely that we could even see "shelf space" wars over the next few years among software resellers.

Admittedly, on Demand can probably tap the tiny market of people who buy exotic software on impulse and must have it (without documentation) instantly. On Demand's equipment also makes good window-dressing for hardware dealers who want to create the illusion of software inventory without committing dollars or effort. (ComputerLand, one of On Demand's first customers, recently turned over its consumer software shelves to an outside rack jobber; we suspect there's a pattern here.) And On Demand will certainly have some appeal to software companies whose retail presence is too marginal to attract conventional resellers.

But can On Demand make any money serving such fringe markets? Probably not. Which means that, Booner or later, the company is probably destined to die the same lingering death as all of its electronic predecessors.

Still, there is one real-world problem that on Demand's CD-ROM systems could solve: providing a distribution channel for upgrades. In talking with On Demand president Nahum Rand recently, it occurred to us that he has a pretty good mechanism for delivering new versions, bug fixes, patches, drivers, etc. Lack of packaging isn't a drawback here (photocopies are fine), and On Demand's equipment is well-suited for tracking and aggregating thousands of small payments that resellers don't want to handle. Will on Demand take our splendid advice and go

Meanwhile, a little company called The Computer Group has come up with a low-tech solution to the shelf space conundrum: Just build more shelves. Computer Group founder George Meier told us he's cut a deal that allows him to set up small display racks in all Egghead outlets, which his company stocks with a half-dozen new titles every month. Meier sells space on his racks to aspiring developers for $4,500; the developer and Egghead split the proceeds of any sales.

If a title moves well during its month on TCG's shelves, Meier points out, the developer has a rock-solid story to tell Egghead's buyers. (Egghead has already picked up several computer Group offerings since the program's debut in January, he says.) And if a product fizzles-well, at least the bad news comes in a more timely fashion.
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Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Rand, Nahum
Date:May 1, 1989
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