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Bottom Line Distribution hits Bottom
Why Bottom Line is closing shop
By Michael Flaminio
Since it opened its Web doors, Austin, Texas-based Bottom Line Distribution served
many customers, including myself, with various products at discounted prices. The
company recently announced that it intends to end business operations and may wish
to find a buyer for the company.
Up to about August 2000, Bottom Line had a good reputation in the Mac industry. For
consumers, they offered discounted prices with adequate service. The slide in customer
service, however, appears to be connected primarily to financial troubles at the
company and the attitude of the owner. Bottom Line had been trying to renegotiate
its status as an Apple reseller with Apple with little successes. The combined factors
of the company's state of business and dealing with Apple ultimately led Bottom Line's
owner David Goldman to essentially give up and head for greener pastures.
Since September of 2000, Bottom Line had effectively stopped normal business operations.
Calls to the company resulted in a recorded message, indicating the company was relocating
to the Atlanta, GA area. While phone operations had stopped, the company did continue
to operate on the Internet. Email to the company and orders placed online were for
the most part processed. Most recently, Bottom Line had started liquidating inventory
on eBay.
Clone Wars
Events leading up to Bottom Line's situation starts in 1996. Among shrinking market
share, in 1996 Apple had licensed its technology to companies to make their own Mac
OS-compatible computers. In 1996, a company called PowerTools had obtained a license
to sell Mac OS-compatibles. The company had obtained whole components from other
computer manufactures, re-brand them and then sold the modified computers to their
customers. When PowerTools started business, the company had strong ties to Bottom
Line, in particular, Goldman was an original investor.
Victor Wong, the principle of PowerTools, also used to work for Bottom Line before
he started the new Mac cloning venture. In fact, when PowerTools started, it shared
office space, resources and some personnel with Bottom Line. Other than illustrating
the connection between the companies, this relationship is not significant, but the
business relationship would become a concern for Bottom Line in the near future.
By the end of 1997, Mac cloning was a thing of the past. In October 1997, Apple had
purchased Power Computing, the largest Mac OS cloner. The acquisition was widely
believed to be an attempt to avoid a large lawsuit from Power Computing due to Apple's
efforts to abruptly end Mac OS licensing. The rest of the Mac cloners, however, were
essentially left out to dry. Apple had maneuvering to eliminate the Mac OS clone
vendors as quickly as possible. Because of the maneuvering, PowerTools had retaliated
with a $100 million lawsuit, which is still pending. PowerTools alleges that Apple
and Umax conspired to halt shipments of computer components in an effort to stop
PowerTools from shipping Mac OS compatible computers.
Gray Market
In 1997, Apple was also grappling with gray market products. These were Apple products
that were intended to go to specific markets, but ended up elsewhere. As an example,
Apple products destined for Central America would often end up for sale in North
America. Because these machines could usually be purchased for less than Apple products
destined for North American consumers, the products could be priced at a discount
and still sold for a profit. A number of Internet resellers had sold these gray market
products; among them was Goldman's company.
A part of an Apple authorized reselling agreement restricts vendors from advertise
Apple products below specified prices known as minimum advertising price, or MAP.
Apple has limited recourse over companies who violate its MAP, but doing so could
make dealing with company difficult. The gray market situation mostly resulted in
other Apple resellers reducing prices or offering promotions to fairly compete in
the gray market.
"The gray market was good for Apple for a million reasons," said Robert
Moriarty of MacCPU. "When Apple couldn't and wouldn't communicate status of
delivery, the gray market supplied machines to those who were prepared to pay for
them. It was very efficient."
Around this time, Apple was changing its business, which was to include the implementation
of direct sales through the Apple Store. Apple was facing competition to sell its
own products from not only gray marketers, but also authorized resellers who were
competing with gray market products. To handle this, Apple had cracked down on gray
market Apple products. Apple pressured companies selling unauthorized products while
at the same time closed the flow of these products to resellers. Most of these companies
stopped selling Apple products, but Bottom Line managed to continue by becoming an
Apple reseller.
Apple Reselling
In July 1999, Bottom Line became an Apple VAR, which enabled it to sell Apple products.
To meet Apple's retail requirements, Bottom Line had made some investments to sell
the products. This primarily involved building a local storefront at its Austin,
TX facilities and modifying their online store to restrict open sales of Apple products.
Apple has always been particular about how its products are sold, and these restrictions
have become tighter in recent years, especially with online sales.
"Maintaining a relationship with Apple [as an Apple reseller] involves understanding
and abiding by the terms and conditions of the reseller contract, said Don Mayer,
CEO of Small Dog Electronics." Apple can be an excellent partner and help you
grow your business as long as you remember that when you crawl into bed with Apple
that you are sleeping with an elephant. When that elephant rolls over in his sleep
you'd better be awake or you can be in trouble."
Several Apple resellers told IGM that Apple has been walking a fine line in its reseller
program. The company is attempting to balance its presence in the market while at
the same time promoting direct sales at its own Internet store. Apple needs to have
its products available in local stores, but at the same time it enjoys greater control
and profits through sales on its online Apple Store.
In the past, Apple has been very protective of online sales of its products. Only
a handful of companies openly offer Apple's full line of products on an Internet
storefront. Beyond the largest catalog resellers, obtaining authorization for open
Apple Internet sales is essentially impossible. Resellers familiar with Bottom Line
believe that the company was selling its products on the Internet against Apple's
wishes. It's believed that Bottom Line was authorized to sell Apple products locally,
and only in a limited bases, if at all, online.
A former Bottom Line employee, however, told IGM that Apple representatives encouraged
Bottom Line to bring sales online. Using a restricted sales system, it's believed
that Bottom Line was permitted to sell Apple products to existing customers using
its Internet store. This is accomplished by allowing customers who had previously
purchased from the company to log in and order Apple products. According to resellers
and Bottom Line customers, however, the customer login produces was nothing more
than a technical formality.
Resellers and customers familiar with Bottom Line told IGM that the reseller's password
system was "transparent" and only required an email address to gain access.
Insanely Great Mac contacted Bottom Line customer Edith Wiske, who had purchased
a new Apple iBook from Bottom Line about seven months ago. Ms. Wiske confirmed that
she had purchased a new Apple product off of Bottom Line's Web site as her first
purchase with the reseller.
End of Line
This isn't the first time Bottom Line ran into financial problems. In 1994, Bottom
Line filed for bankruptcy protection. This in itself isn't extraordinary with cash-flow
dependent Internet companies, but according to sources, the company reorganized well.
A former employee noted that "the company had reorganized [in 1994] and did
quite well after that point."
Bottom Line's contract to sell Apple products was to end in July 2000. Up to this
point, it's believed that the company was operating on thin profit margins, but was
doing relatively well. Customers were please with service and the company appeared
to be doing business as it always had. In July 2000, however, Apple did not renew
its reseller contract with Bottom Line.
Bottom Line said in a letter that Apple had denied the renewal of its contract because
of unfair reasons. Goldman claimed that Apple had not renewed its contract with Bottom
Line solely due to the PowerTools' lawsuit. According to Goldman, the result had
been detrimental to his business. In the statement, Goldman said, "Apple's decision
not to renew the contract has had a severely negative financial impact on Bottom
Line..."
Apple did not return requests for comment on why the contract with Bottom Line
was not renewed. Sources familiar with Bottom Line tell IGM that it's likely there
were a number of reasons that contributed to Apple not renewing its contract with
Bottom Line. The foremost was likely the fashion in which Bottom Line sold Apple
products over the Internet. It's also reasonable that Apple would be reluctant to
work with someone who was a party to a $100 million lawsuit. On the other hand, it
was also likely that much of this resides in unrelated motives within Apple itself,
such as the elimination of its VAR program. According to Bottom Line, Apple's official
reason had been because of poor Better Business Bureau reports that were filed on
Bottom Line. Bottom Line denied these allegations. IGM filed for a BBB report on
Bottom Line and found nothing of significance surrounding the renewal period.
Whatever the reason, Apple's decision has put Bottom Line on the ropes, both financially
and emotionally. Goldman indicated that because of the difficulties in dealing with
Apple, he wishes to leave the Mac industry and not run Bottom Line any further. Goldman
wishes to find someone to purchase the company, however, that may be difficult considering
the customer service problems over recent months.
As Bottom Line was deciding its next move, many customers last fall were left in
the cold. For the most part, IGM found that customers who dealt with Bottom Line
before August were pleased with the company's service. Prompt service and even follow-up
calls seemed common before mid-summer. Since September, however, customer service
appeared to have significantly declined.
"[Accepting, but not filling orders] was a disservice to their loyal customers
as well as to the market in general," said Larry O'Connor, owner of reseller
Other World Computing. "It has the effect of reducing affected customer's confidence
in the whole online ordering process."
"Companies like [Bottom Line] were always, in my mind, doomed," said Stephen
Trujillo, owner of reseller MacGurus. They simply had too many dissatisfied customers.
In my opinion, companies like Bottom Line which were vulnerable for whatever reason,
found that competition became even more bitter than previously, and faced the Darwinian
consequences of a relatively free-market."
Alexa Gregory, who ordered memory in September 2000, said, "I had two problems
with an order, first [Bottom Line] charged my credit card twice for the same item
and second, the item they shipped caused the machine to be taken into a repair shop
to recover the data." Gregory concluded, "Any money saved by buying online
was erased."
Jeannette Belliveau notes that her order was flawed at two levels. First her CD-RW
was defective, and second it was an incorrect product. Her order was placed in late
July, and has since been in limbo. The unit was returned to Bottom Line and has since
lost contact with the company. "It [has been] nearly three months since I ordered
the unit and I have nothing to show for it."
In contrast, Edith Wiske, who was noted above, was very pleased with her order placed
last summer. Back when Bottom Line was still selling Apple products, Wiske's experience
with Bottom Line was like many over the past years. Wiske told us that she usually
ordered from larger catalog resellers and was pleased with her Bottom Line experience.
"I had no problems whatsoever with the order, and it was delivered in excellent
time and also had a customer courtesy follow-up call from them."
Jon Laye, who has been purchasing from Bottom Line for about four years, was always
satisfied with the company's service. "Any problems I have had with Bottom line
has always been resolved quickly." Laye concluded, "It's sad to see them
go, they were one of the most reliable and trusted Mac dealers I used."
The Bottom Line
Is it the end of the line for Bottom Line? Maybe, maybe not. Goldman clearly indicated
he wishes to leave the business and perhaps someone will come behind to pick up the
pieces. In the mean time, the company is selling off its inventory at discounted
prices and is trying to resolve any outstanding issues with customers. If a buyer
is found for the company, they will likely be left little else than the company name
and a damaged customer list.
Mr. Goldman told IGM that any customers with outstanding orders or problems with
the company should fax Bottom Line at 419-781-1185.
Published: January 5, 2001
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