Dell's dilemma: A Kmart rep in a Macy's market

Consumers and businesses both seem to want quality -- and are willing to pay for it -- but Dell's focus and rep are elsewhere

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Admittedly, Apple's rep for quality is not always deserved, as anyone who owns a MacBook Pro with defective charging circuitry can attest. Apple's laptops had this flaw for several years, and the company never owned up to it. Every MacBook Pro bought at InfoWorld from 2006 to 2008 has this flaw, for example.

But on the whole, Apple's quality is much better, it's innovation much more compelling, and thus its perceived value much higher. Despite the price premium, Apple is growing sales substantially. Dell may hope to charge a similar premium, but without a sustained strong value proposition, it's likely to be as successful as Kmart would be in trying to charge as much as Macy's.

Is Dell quietly shifting out of the PC business?
Dell may understand that its consumer PC business is a declining one. At a June 29 financial analysts call, its execs said they've significantly curtailed consumer PC R&D spending as consumer PCs' contributions to the company's profit margins have declined from 50 percent in 2005 to 36 percent today. They said they were banking on a move from Dell's traditional base of consumers and small businesses to high-margin enterprise storage and consulting services to grow revenues and profits, and so its investments are mainly in those enterprise businesses.

In finance-speak, Dell is managing its PCs for profitability. In plain English, it means riding that horse as long as they can, with as little investment as possible, until the horse dies.

The question, as Dell tries to remake itself, is whether its Kmart reputation and business approach will harm the desired Macy's reputation. Its competitors have all faced a similar dilemma but responded differently.

  • When IBM saw its PC business as a drain on its future, it sold out to Lenovo and cut the ties.
  • When HP began to see the corrosive effect of its cheapo PC strategy, it jettisoned its Compaq brand -- but HP had been wise enough to keep the Compaq brand separate, so after it denigrated that once-proud name, it could kill it without affecting the HP brand.
  • When Apple got drawn into the cheapo PC strategy in the mid-1990s, it struggled for a decade to reverse the damage, helped by Steve Jobs's singular focus and, frankly, a world that had given up on the company and thus ironically gave Apple the freedom to reinvent itself.

That paid off handsomely for Apple, as the current sales and profit figures show. But as the PC market shifts to something more iPad-like, does Dell have the same luxury of time to shed its Kmart reputation? Or does it need to pull an IBM? One thing is certain: A Kmart product is not what people are buying any longer.

This story, "Dell's dilemma: A Kmart rep in a Macy's market," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow on Twitter.

Copyright © 2011 IDG Communications, Inc.

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