computerworld.com
Dell's Model Fails in Other Arenas
By DAVID MOSCHELLA
OCTOBER 21, 2002
Just how important an IT supplier is Dell Computer likely to become? As the one big success story during this postbubble trough, Dell is now the most intriguing player in the hardware business. Its growing ambitions in servers, printers, storage, network equipment, PDAs and services raise the possibility that a new industry leader might emerge.
Of course, some of this success stems from the dismal efforts of Dell's main PC rivals. The advantages of Dell's direct sales model have been compelling since the late 1980s, and undeniable since the growth of the Web. But amazingly, IBM, HP/Compaq, Apple, Sony and others have done virtually nothing to respond. For years, I expected someone to acquire Gateway and then develop separate direct and channel-based PC businesses. But while this could still happen, the window is nearly closed, and thus Dell's PC market-share gains should continue.
Consequently, the main question is whether Dell's momentum can be extended into related product and service areas. I know Thornton May touched on this topic earlier in this space [QuickLink 32553], but here's a very different take.
Entering related hardware markets is certainly the fastest way for Dell to fulfill its forecast that its revenue will double over the next few years, making it comparable in size to IBM and HP. However, while some successes are likely, Dell's enthusiasts may be overestimating the applicability of the direct model to other IT businesses.
On the plus side, there's little doubt that many customers will be happy to get a wider range of commodity products and services from their main PC supplier. It's also clear that significant cost savings can be gained by cutting out the middleman, reducing inventories, and getting new products to market more quickly. If nothing else, aggressive printer and consumable pricing could put further profit pressure on HP.
However, PCs are almost uniquely well suited to Dell's current business model. The ability to configure a PC exactly the way the customer wants it is a huge advantage over other distribution channels. Unfortunately for Dell, this type of mass customization is much less relevant to most of the new markets the company is pursuing. Printers, for example, typically have no configuration options whatsoever, and there isn't nearly as much need to get the very latest models.
More fundamentally, the tremendous success of Dell's direct business model can't be separated from the peculiarities of the PC business itself. It's the near monopoly positions of Intel and Microsoft that have forced PC makers to compete almost solely on efficient assembly and distribution. In contrast, the key suppliers of printing, storage, networking and other technologies almost always sell their own branded end-user products, and therefore their willingness to work with Dell is inherently much more problematic.
Thus, I suspect that the more Dell offers its own branded products, the more it will alienate current business partners and lose the best-of-breed neutrality and flexibility that has been the key to its PC success. The recent canceling of agreements by HP, Cisco, and 3Com and the delicate relationships with EMC and Lexmark should all be seen in this light. In the end, the model that has made Dell's PCs so successful can't be fully replicated in many other IT businesses, and this should provide at least some check on the company's long-term growth prospects.
David Moschella is an author and independent consultant. Contact him at dmoschella@earthlink.net. |
