The constantly shrinking market

It is hard to miss. The flyers come to my door almost on a daily basis. A brand new Dell PC for only $399. Another PC from Emachines is priced at $799. According to the flyer, the Emachines PC is loaded with extras. No monitor, however. Then there is Supercom with a $299 priced Touch System. Wow, that

is really low.

For Dell, they now have a US$60 billion company-wide goal to achieve. Currently, Dell has 16 per cent worldwide marketshare, from IDC figures. To achieve this goal they have to hit about 30 per cent or double their existing marketshare.

How do they plan on doing this? Well adding more products is one way. They have come out with a line of printers, servers and network storage systems to complement PCs and notebooks.

They don’t make any of these products, really. Dell just partners with OEM manufacturers like Lexmark and EMC to expand the product line. They have also engaged with the channel for their own low-end white box systems. This program is only in the U.S. and, according to Michael Dell, the founder and CEO of Dell, an “experiment.”

More products will not be enough, mind you. Dell will have to penetrate European and Asia markets where IBM and Hewlett-Packard reign supreme.

Part of Dell’s strategy is to cut $3 billion out of its own model. Where these cost savings will occur will be anyone’s guess. Will it be service? Will it be assembly? Will it be executive payroll? Highly unlikely! Whereever it will be, $3 billion no matter how you slice it is a huge chunk of change and does not easily disappear out of some company’s cost model or operation.

If Dell manages to succeed in cutting $3 billion in expenses look for them to pass on those savings to the end users. So that $399 PC will be what? Fifty cents!

Another key question is how will Dell gain a foothold in the overseas markets? IBM and HP are already established players there. They have literally hundreds of thousands of customers; all fully entrenched in the channel.

I see two ways Dell can go. Dell can stay with its core direct model and just undercut the competition the same way Dell did in the U.S. and in Canada, with success.

Or Dell can establish partnerships with key channel players in Europe or Asia. Have the European and Asian-based resellers bring Dell products to market.

Dell will probably go direct in my mind, but by doing so how will they be able to service customers overseas? In Canada, Dell has always had trouble servicing customers mainly because of lack of resources. Several times these Dell customers have had to bring their faulty PC and notebooks to resellers for service.

Also keep in mind that IBM and HP have performance goals of their own to meet. Both firms know Dell is a serious player and will not take them lightly in any market any more.

What does this all mean for Canadian resellers? Well, look for more price erosion coming your way. Sure, PC shipments are on the rise and white box PCs will account for more than 30 per cent of those shipments in Q3 and beyond, according to Evans Research. This will help the bottom line, but what will help it even further will be adding value to that machine and wrapping services around it. Something Dell still does not do.

Dell’s white-box desktops start at about $500 without a monitor for its 510D white-box model. Dealers are given discounts based on sales volume, but they are often required to pay shipping fees of about $99 per PC. On its own Small Business Web site, Dell sells similar Dimension 2350 desktops at prices starting at $399. As a result, some dealers see Dell as an outright competitor.

Other customers are nervous about giving Dell their customer information, which they say is required to make a transaction.

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Jim Love, Chief Content Officer, IT World Canada

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