Can Dell Think Outside the Box?

Michael Dell has derived great pleasure from HP’s apparent decision to spin off its PC business. As he has been telling the Financial Times and others recently, Dell (the company) believes having a PC business will be a critical differentiator as it pulls together and offers complete IT solutions to enterprise, service-provider, and SMB customers.

Hardware Edge?

Here’s what Dell had to say to the Financial Times about his company’s hardware-based differentiation:

 “We are very distinct from some of our competitors. We believe the devices and the hardware still matter as part of the complete, end-to-end solution . . . . Think about the scale economies in our business. As a company spins off its PC business, it goes from one of the top buyers in the world of disk drives and processors and memory chips to not being one of the top five. And that raises the cost of making servers and storage products. Ultimately we believe that presents an enormous opportunity for us and you can be sure we are going to seize it.”

Well, perhaps. I don’t know the intimate details of Dell’s PC economies of scale or its server-business costs, nor do I know what HP’s server-business costs will be when (and if) it eventually spins off its PC business. What I do know, however, is that IBM doesn’t seem to have difficulty competing and selling servers as integral parts of its solutions portfolio; nor does Cisco seem severely handicapped as it grows its server business without a PC product line.

Consequences of Infatuation

I suspect there’s more to Dell’s attachment to PCs than pragmatic dollars-and-cents business logic. I think Michael Dell likes PCs, that he understands them and their business more than he understands the software or services market. If I am right in those assumptions, they don’t suggest that Dell necessarily is wrong to stay in the PC business or that it will fail in selling software and services.

Still, it’s a company mindset that could inhibit Dell’s transition to a world driven increasingly by the growing commercial influence of cloud-service providers, the consumerizaton of IT, the proliferation of mobile devices, and the value inherent in software that provides automation and intelligent management of “dumb” industry-standard hardware boxes.

To be clear, I am not arguing that the “PC is dead.” Obviously, the PC is not dead, nor is it on life support.

In citing market research suggesting that two billion of them will be sold in 2014, Michael Dell is right to argue that there’s still strong demand for PCs worldwide.  While tablets are great devices for the consumption of content and media, they are not ideal devices for creating content — such as writing anything longer than a brief email message, crafting a presentation, or working on a spreadsheet, among other things.  Although it’s possible many buyers of tablets don’t create or supply content, and therefore have no need for a keyboard-equipped PC, I tend to think there still is and will be a substantial market for devices that do more than facilitate the passive consumption of information and entertainment.

End . . . or Means to an End?

Notwithstanding the PC market’s relative health, the salient question here is whether HP or Dell can make any money from the business of purveying them. HP decided it wanted the PC’s wafer-thin margins off its books as it drives a faster transition to software and services, whereas Dell has decided that it can live with the low margins and the revenue infusion that accompanies them. In rationalizing that decision, Michael Dell has said that “software is great, but you have to run it on something.”

There’s no disputing that fact, obviously, but I do wonder whether Dell is philosophically disposed to think outside the box, figuratively and literally. Put another way, does Dell see hardware as a container or receptacle of primary value, or does it see it as a necessary, relatively low-value conduit through which higher-value software-based services will increasingly flow?

I could be wrong, but Michael Dell still seems to see the world through the prism of the box, whether it be a server or a PC.

For me, Dell’s decision to maintain his company’s presence in PCs is beside the point. What’s important is whether he understands where the greatest business value will reside in the years to come, and whether he and his company can remain focused enough to conceive and execute a strategy that will enable them to satisfy evolving customer requirements.

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