I can’t argue too much with Nick Carr’s take on Dell’s problems. I think Nick is correct that the support side of the business is dragging Dell, and its profits, down.
But I think there’s even more to it. Part of it isn’t Dell’s fault and part of it is.
The part that isn’t Dell’s fault is the fact that Intel and Microsoft aren’t doing their part to get new technology out the door that will spur lots of users into computer buying action.
The part that is Dell’s fault is the fact that Dell has become one of the giant companies it was created to slay and its regrettable decision to try to go cheap and off-shore where support is concerned. Most of the people who buy Dells are not computer geeks- at most they have read in the trades that Dells have traditionally been reliable and well-supported. These people have trusted the Dell brand, not so much for the cutting edge technology as for the reputation for reliability and good support. For Dell to take the cheap route where support is concerned is, to put it mildly, not taking care of the goose.
Adding to the problem is that Dell’s notebook line is faltering at a time when more and more businesses are moving to laptops. My firm just replaced our Dell desktops with HP laptops. From what I hear and read, I suspect some other large companies have done so as well.
Back in the day, buying a Dell and not a Compaq or an IBM was a little bit of a rebel move- and Lord knows the establishment-hating computerites of the world are always willing to take a shot at the man. Unfortunately for Dell, it has moved from the right side of the table to the wrong side. Now, along with Microsoft and Intel, Dell is the man. Its former place is now occupied by a new generation of small shops, who take their own shots at the man by building generic (but, generally speaking, quality) machines with AMD chips and Linux operating systems.
Making matters worse is that all of this is happening at the same time the desktop computer market matures, making computers less about tech and more about commodity.
Given that, Dell has to figure out how to make the transition from tech company to commodity company. In 2006, Dell has more in common with Ford or GM than it does with a tech company.
Making money in commodities is almost entirely a contracts and cost business. I think that explains, but does not excuse, the failed attempt to cut support costs.
It’s going to be a tough ride for Dell, but Dell is not without some advantages.
The advantages in the direct sale approach are still there. It costs money to operate and maintain retail distribution channels. Plus, Dell is expanding its services into storage and IT services. Its experience in building quality equipment cheaply will serve it well in those areas too. And there is still growth to be had overseas.
I still recommend Dells to my friends who ask. But I have to admit that, other than one trusty Latitude I keep around for guests, none of my current computers are Dells.
DISCLAIMER: I am a long-time Dell shareholder.
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