A Future For Dell?

At its core, Dell has always been about customization. We tell Dell what we want from our hardware, and Dell delivers. In the company’s heyday in the late 1990s, its direct-to-consumer retail strategy—which put the right products in the right hands quickly and affordably—was a smashing success.

By late 2006 though, with most off-the-shelf computers capable of handling whatever consumers asked of them, the importance of customization had waned. Sunil Chopra, a professor of managerial economics and decision sciences at the Kellogg School, predicted that soon Dell would have to look toward traditional retail channels. Six months later, when Dell announced it would begin selling select desktop computers at Wal-Mart, Chopra was proven correct.

It’s been over six years since Chopra’s prophetic remarks. And with Dell’s buyout heavy in the news, I’ve asked Chopra to share his thoughts about where the company has been and where it’s headed. His rather sobering conclusion? The problems facing Dell are “even worse” than they were back in 2006 and 2007.

Consider, he tells me, a success story like Apple. “Just think about how many different products [consumers] buy at an Apple store. It’s only a handful,” Chopra explains. “You might have the iPad, you might have the iPad Mini, you might get a retina display, you might get a normal display, but I mean we’re talking a very limited variety. We’re not talking about much more than that.” In other words, these days consumers expect to be told what it is they want. As for customization, well, there are apps for that. For hardware, this makes product design and functionality, far more so than customization, the coins of the realm. Alas, says Chopra, design and functionality were never historical strengths for Dell.

The company has tried to beef up the service side of its business. But with limited demand for customizable hardware, Chopra explains, comes limited demand for the support services Dell is best equipped to provide. (In this, the company is not alone. Who needs Best Buy’s Geek Squad, for instance, in an era when set-up has generally been reduced to plugging in and turning on?)

Where Dell is somewhat better situated is in the server market. Corporations still have computing needs that require customized hardware. But this bright spot too may fade as companies shift toward cloud computing.  As a corporate customer, “I actually don’t buy servers, and I don’t really care what the servers do, if I am enrolled in cloud computing,” says Chopra. “Somebody—it could be Amazon, could be Google, whoever—somebody’s providing me this service, and they’re going to take care of the servers.”

So what’s next for Dell? The company could of course transform itself into something new. And, says Chopra, “If anybody can make that happen, it’s probably somebody like Michael Dell.” But, he cautions, that’s a big if: “I think the strengths required today are just so different.” Alternatively, instead of focusing on transformation and growth, Dell could focus on profitability. If the PC market is a “cash cow” for the company, says Chopra, then by all means Dell should keep milking it. And if it ever stops being profitable, the company should be prepared to exit the consumer end of the business altogether.

Both alternatives could probably be more easily achieved as a private company than a public one. But beyond going private, Chopra sees few good moves in Dell’s future. “I don’t have any really good ideas for them,” he says. “I really don’t.”

KelloggInsight