Michael Dell is from Mars
November 01, 2005
Back in January, I described the bifurcation of the home PC market - into a dirt-cheap low end and a fashion-driven high end - and the challenge it posed to Dell. Back then, the challenge was theoretical. Now, it's real.
The company's announcement of a major sales and revenue shortfall yesterday underscores the problems it's having, particularly in the consumer market. Dell's been extremely successful for many years in riding the IT commoditization wave - streamlining its operation to make money at a price point that's unprofitable for competitors - but now it's finding that sometimes cheap can be too cheap. Unlike in the business market, where Dell has been able to offer attractive value-added services to keep box prices off the floor, a large number of home buyers are just grabbing the cheapest machine available. With competitors, including a resurgent HP, now willing to battle Dell for market share, particularly in the expanding laptop market, Dell's in a squeeze. It's lost its margin on home PC sales. Although the consumer market represents a relatively small portion of the company's overall revenues, it's big enough to wreak havoc with Dell's results, a fact that's led investors to flee the once bullet-proof stock.
Dell's response? To shift away from its traditional, scale-driven commodity strategy and try to boost profits by selling high-end machines to the well-heeled. Because the new positioning goes against the grain of its low-cost, anti-innovation heritage, the shift will be a tough one to carry out. Dell will have to compete more on the terms of high-style companies like Alienware and Apple, rivals it hasn't had to worry about much in the past. It's leaping, in other words, into a new world.
Michael Dell is from Mars, Steve Jobs is from Venus. Planetary convergence is rare, in business as in the heavens.
They should also talk to Sun Microsystems about the high-end IT world. It's a tough place to be.
Posted by: Justin Pfister at November 1, 2005 02:14 PM
Your bifurcation model exactly describes our recent PC purchasing. 2003 - high-end Sony Vaio desktop for photo and video work. 2004 - a Dell that's essentially a broadband terminal to access the Web services we use. All the vital work that's carried out on it is via Typepad, Mambo, del.icio.us
Hard to imagine a sexy Dell box...
Posted by: Colin Donald at November 2, 2005 06:57 AM
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