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The Demise of Dell
The personal
computer is one of the most important developments of the 20th
century. Its importance as a product, category and industry continue today.
Hindsight is
always 20/20. But try to imagine going back in time.
Back in 1980
if I asked a multiple choice question about the emerging personal computer
industry, what would your answer be?
What company
is most likely to dominate the personal computer market?
(a) IBM, the
company that invented the mainframe computer?
(b) Apple,
the leading home computer?
(c) Sony,
the leading electronics brand?
(d) Digital
Equipment, the inventor of the minicomputer?
(e) Dell, a
company started by a sophomore at the University of Texas?
Most people would
probably answer IBM. With the rest answering Apple, Sony or Digital Equipment. I
doubt anyone would have said Dell.
It isn’t
logical, rational or reasonable to believe that a nerdy student from the
University of Texas could take on some of the biggest companies and brands in
the world and win.
But of
course he did. He took them all on and won. Michael Dell built Dell Computer
into the world’s largest computer company leaving IBM, Apple, Sony and Digital
Equipment in the dust.
Marketing
isn’t logical and marketing doesn’t follow the rules of common sense. Which is
why the best way to understand marketing and to predict the future is by
studying the past.
How did Dell
come out of nowhere to dominate the computer market? It wasn’t an accident that
Dell succeeded. They succeeded because unlike IBM, Apple, Sony, Digital
Equipment or any of the other computer makers, Dell was totally focused.
Dell focused
on one product: the personal computer.
Dell focused
on one distribution system: direct.
Dell focused
on one market: business.
And as a
result, Dell became the largest selling brand of personal computers in the
world and had the best stock-market performance of the 500 companies in the
Standard & Poor’s Index in the decade of the 1990’s.
But success
can go to your head. And a great stock performance can lead to intense pressure.
And that (perhaps unreasonable) pressure to keep up the growth leads to
expansion which can undermine a company and a brand. This is exactly what
happened at Dell.
In 1997,
Dell announced it would begin taking aim at consumers.
would be diving into the consumer electronics marketing.
Also in 2003, it
announced it would be selling computers in Sears and other large chains. In
2007, Dell announced it would be selling computers in Wal-Mart. In 2009 Dell
announced it would start to sell smartphones.
All of this
has diluted Dell’s focus and eroded the strength of Dell’s brand. No longer
does Dell stand for “direct” in the mind. Dell is just another computer
company. The expansion of the brand hasn’t helped it gain market share either,
quite the opposite, Dell lost its PC leadership HP.
Today
Hewlett-Packard is the world leader.
HP 19
%
Dell 15 %
Lenovo 7 %
Acer 7 %
Toshiba 4 %
In 2007, Michael
Dell returned as CEO in an attempt to right the ship. And while his personality
and presence has helped the company. Michael has not made the tough calls
necessary to refocus the company and brand.
Why is Dell
still relentlessly chasing consumers. Dell’s consumer division accounts for 20%
percent of sales and it operates at a dismal profit margin of 2.4% (far lower than
Dell’s other divisions.)
Why isn’t
Dell making money on consumers? Because the brand doesn’t have power with
consumers.
The
low-cost, no-frills, personalized, direct model isn’t appealing to consumers.
Consumers like cool, consumers don’t know enough to personalize their
computers, consumers like to touch before they buy and consumers are turning to
laptops which are harder to customize.
Consumers
have distracted Dell. Dell spends so much time trying to make itself more
appealing to consumers that they become less appealing to businesses. “Dude
you’re getting a Dell!” was the kind of advertising that doesn’t win over
company procurement departments.
The Wall
Street Journal blames Dell’s demise on the “faltering” of its direct sales
model. I think it is just the opposite. I blame Dell’s demise on its drifting
away from its direct sales model. Dell should have stuck to its focus on
selling direct to businesses.
The Dell
brand will never work with consumers. Dell will never be cool. The more it
tries, the worse the results. And when a brand isn’t cool, a company is forces
to sell on price which is why Dell will never make any money selling to
consumers.
Expansion is
what got that got IBM, Sony, Motorola and many other companies into trouble.
You can’t put your name on everything and sell to everyone.
That’s not
the way to build a leader brand. Nor is it the way to make decent profits.
In the
business world today there are dozens of Dells, all trying to expand their way
to success when the only thing that really works is exactly the opposite.
Narrow your
focus. Build your brand. Rake in the dough.
Enough said?