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April 18, 1999
Relentless competition, product commoditization, prickly customers and the sheer arrogance that comes with being No. 1 (or a strong No. 2) invariably conspire to bring a company down.
Apple was No. 1 in 1990 before flailing in the business market and being knocked out by IBM. IBM thought its name and prestige would carry it, but customers flocked to Compaq, which undercut IBM in price by using Taiwanese contract manufacturers.
Packard-Bell then threatened Compaq, but consumers quickly tired of its strategy of selling low-cost computers made out of parts from a 1977 Gremlin.
Eventually Compaq imploded because of: incredibly poor demand forecasting, an inability to come up with a workable direct sales strategy, and a failure to understand that there was a difference between being King of the World and King of Downtown Houston.
In late 1998, I saw Compaq's CEO at the time, Eckhard Pfeiffer, walking around a trade show flanked by two bodyguards. Six months later, he was out of a job.
So where did Dell go wrong?
First, it hired too many former management consultants like Rollins himself. Back in 2004, a group from CNET News.com visited the Round Rock, Texas, headquarters. Nearly everyone we met had recently parachuted in from places like McKinsey and Co. I met only one guy with any authority who had spent time on the front lines of sales, i.e. setting up cardboard end caps at retailer outlets.
Management consultants typically have very impressive credentials. Unfortunately, most of them also associate only with their fellow Wharton graduates so they are often culturally disconnected from their customer base, which can and often does include 13-year-olds, IT managers at corporate branch offices, and people who skip the crossword puzzle in favor of Junior Jumble. In other words, the rest of us.
Although they try to resist the temptation, the average MBA-trained executive sees people like this as a cost sink and spends most of his or her day trying to figure out how to cut back on services without anyone noticing. Unfortunately, customers--particularly these days--really want to be sucked up to: sites like Yelp.com have seen astounding growth by giving people a way to vent their anger about dismissive waiters.
Dell began to treat consumers and even some business customers like they were passengers on a Greyhound bus. Customer service became a chronic complaint and people flocked to Hewlett "The Computer is Personal Again" Packard.
It was a weird turnaround for Dell. The company's secret weapon for a few decades was strong customer satisfaction. Michael Dell himself, even in recent years, could occasionally be seen in the call center donning a headset and answering the phone. Customer trust will take a while to win back.
Second, Dell has no style. Remember the WebPC, an all-in-one (sort of) computer back in the late 1990s? It looked like a peasant woman from Uzbekistan. The company's MP3 players have always seemed bland. What is one of Dell's most consistent advertising venues? The back of Parade magazine in the Sunday paper.
In some ways, being boring has been an advantage: business customers love dull. But consumer PCs and consumer electronics have become a larger part of the business in recent years. Dell has come out with TVs, but the market share is low. Overall, consumer is still only 15 percent of the company's revenue.
Third, price. Everyone thinks that Dell has been the low-cost leader among major PC makers. In reality, Dell's average selling price has been higher than the industry average and higher than that of rival HP for years.
In 2002, the average selling price for a consumer PC from Dell was $1,084, according to research firm IDC. HP's average selling price for the same year was $1,009, or $75 lower. The average for all manufacturers was $1,030, $54 less than Dell. In the first three quarters of 2005, Dell's average selling price for U.S. consumer PCs was $854, more than $200 above HP's $651 average. It was the same in 1998.
Dell never has gone out of its way to advertise this data, but it has worked to its advantage. Unfortunately, PC prices have declined while capabilities improved. "Now, even low-end PCs are able to deliver the performance customers need," said Charles Smulders at Gartner. "The Achilles' heel has been the precipitous fall of average selling prices in the last few years."
Fourth, call it revenge. I can't prove this empirically, but customers flocked to Dell in the 1990s because the company seemed to embody an American ideal. It was a young company fulfilling a need in a clever way, and many of its employees were becoming millionaires. And every bump in the stock meant a bump in your 401K. Even during the tech implosion Dell managed to maintain its footing.
By 2004, it was just tough to look at them anymore as an underdog eager to do the right thing. It had become the Man.
Biography
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas. He has worked as an attorney, travel writer and sidewalk hawker for a time share resort, among other occupations.
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Dell 15" Laptop Deals
Depending on where you happen to click (home, small business,
big business), you can get the same equipment for vastly
different prices. This is not a way to gain customer confidence
and loyalty. "You mean I paid an extra $200 because just
because I said I was a home user?" Should Dell be surprised that
years of tricking customers into paying a higher price so they
subsidize another class of customers buying the same
equipment has caught up to them?
Now that he's back at the helm, Dell should sell the company
and return the money to shareholders.
in 1990, or was it 1980? And those price comparisons last year
between Macs and Dells, which showed comparable Dell models to
be equally or slightly higher priced, now ring a bit hollow. Still like
Macs better than Dells, though, and I've used both.
As both a consumer and business customer of Dell, I can agree with every component of this article.
For years, I kept our company away from Dell because they just didn't get business needs and tried to hock consumer equipment in a large business environment. But, they finally figured it out and we have embraced them all the way to the Data Center.
But, it has come at a price, which is a disconnect from their consumer roots. They have got to find their way back there without disconnecting from business to be able to continue to grow.
HP rediscovered their consumer roots, but have damaged their business side in the process ((hence my company's move to Dell).
It's all about agility and they both are struggling which is creating opportunity for Apple, which isn't necessarily a bad thing, but good price points have never been Apple's forte, so I'm hoping they regain their footing to keep a strong price pressure on the market.
I am pretty sure I commented on it in that article too.
Customers have long memories. Inexpensive is good, but cheap is bad.
Apple was only "number one" in the 1990's as a personal computer brand and unit sales, it never has large business market share in the 1990's. IBM beat Apple in the 1980's
Compaq did not beat IBM with Taiwanese contract manufacturers, Compaq beat IBM by using generic parts and teaming up with Microsoft. Plus, Compaq did not spend a dime on developing operating system like IBM's OS/2.
But I do agree with the author: Consultants have their place, but they are not good at taking over and running a company in the long term.
I got a HP laptop recently, business machine, much better. Poor website design on HP behalf is my only complaint.
So there is no way I can recommend dell. So they are getting what they deserve. I do think though they are big enough and bold enough to re-invent themselves. So best of luck to them there.
1.) India service - while well-meaning, these folks read a script. If you are outside the script, or know anything about PC's, you are in big trouble and will become frustrated if not downright angry. If you outsource, don't think you can get folks that know less to get by;
2.) Build quality - little things are failing on the last notebook I bought (2 years ago) including screws falling out, feet falling off, wear from palms, cracking cases, etc. It is off, and that is where Dell was supposed to be good;
3.) NO STYLE - bland, bland, bland. I just bought a notebook for my daughter from HP, it is white (like an Apple!) and very attractive styling, has well thought out multimedia, good size keys, good value (only problem is a HUGE batter that lifts the notebook into the air, stupid mistake). Given the same price and the same components, style wins;
4.)Management - I cannot agree more with the "Management Consultant" syndrome. Make the numbers look good in the short term, take your bonuses, when the repurcussions come in 18-36 months, bail and go to another company with your resume showing how you improved profits 25% (of course, no note about the long-term impact as we are now seeing).
5.)Pricing - what confusion! Like products at the grocery store, too much differentiation is a bad thing, too much choice confuses. I don't mean configuration; custom configuration has always been a Dell strength. I mean price.
6.)Investment (Research) -how about research/investment into design/style?
I have another 3 notebook purchases coming up, Dell will have to change quickly for my money to go there.
Shame on Cnet News!
Would Kanellos say that about a native woman from Kenya? What about a woman from a kibbutz in Israel? Or Greece? Or Ohio?
This is not about political correctness, it's about showing respect for people -- something the author failed to do.
Compaq used generic parts but that was part of the taiwanese expansion. they were the first to really embrace them over there. os/2, I think, was budgeted in a different department.
Prices have been excellent.
We've become a nation of spoiled whiners, looking for a golden egg but not willing to pay the price.
- First thing to do
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by wookielookin
February 1, 2007 11:26 AM PST
- The first thing to do is get Dell customer service out of India,
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all 2 replies
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See all 65 Comments >>Pakistan, the PI or where-ever the hell it is. This past spring I
had a hell of a time getting anyone over there to even recognize
that my two month old - broken - 20" plasma monitor was even
under warranty. After two weeks of phone hassles, starting at
tech support ground zero each time, I had to call Dallas and
personally ask for Mr. Dell before I got any attention.
Thank god it was a work computer and monitor. My Macs dont
give me anywhere near the aggravation.
Tom