Updated at end of article

0.6.2006
This weeks news, HP sells more PCs than Dell.  What happened to Dell?  Lets take a short historical look at thier value-add, thier reputation (from one persons, mine, perspective) and look forward - and it isn't going to be pretty going forward....

(Disclaimer of context - I was a Dell fanboy for much of the 80s and 90s, made a LOT of money from thier stock, from the PCs limited days thru the late 80s. Totally divested in the past 6 years of it.  And feel pretty firm about it at this point.....)

In the Late 80s you bought a PC from PCs Limited (Dell) because

• Thier catalog and phone ordering was the easiest to understand and customize
• It was about $1000 cheaper than IBM, HP
• It was more reliable than local-built shop ware
• It was faster and about the same price as building it yourself
• Support was great
• It came with some useful software
• It was a reliable PC

In the early 90s you still bought from Dell because

• Thier web site was the easiest to use and to customize from
• Thier support was still good
• They were about $500 cheaper than IBM, HP
• They were more reliable than local-built show wares
• It was now more expensive than building it yourself
• Support was OK, not great
• It started to ship with tons of pre-load software you needed to remove / shutdown
• Its reliability was average

In the late 90s and early naughts (2000+) you bought from Dell, but

• Other websites were getting easier to use
• Thier support reeked and was off shore
• They were often the same price, or $50 to $100 cheaper than HP IBM
• They were same reliability as local-build shop wares, perhaps under HP IBM
• More expensive than building it yourself
• The pre-loaded software was really a problem, especially for your mom who ended up with 3 AOL accounts
• Reliability was average

And then, you bought from someone else for the late naughts because

• You were familiar with other easy to order websites
• They were the same price as HP, IBM, SUN
• More expensive than building it yourself
• The pre-load, including the OS, was of no use to you, you switched to open office
  
• Dell support reputation still bad
  
• Reliability reputation still bad
• You wanted dual core, 64 bit, or Opterons before they were outdated

and thus, thier hold on you was broken.  Several mis steps.  Where is the Value-add, the offer-advantage for Dell?

• Are they the cheapest on price - no
• Are they more reliable - no
• Support better - no
• Easier to buy - no
• Novel features or innovative technology, or intellectual property - no

So dell is in quite a pickle.  Companies like Apple, HP, SUN are innovating and leveraging thier IP - - thier products have great end-user first experiences.  Compare your first hours with a Mac over un-loading your payloaded drive on a Dell PC.....

Why were they so big ?
Dell was a great supply chain optimizer - and you recieved quite a large amount of savings and better components, more reliability than local shop builds as a result.  But unlike Andrew Carnegie, Micheal Dell did not spend his billions buying up his vertical - those shops that assemble his PCs in the morning, are assembling Lenovo and Fujistsu laptops for the afternoon shift.....the rest of the world caught up.

But the rest of the world has engineering, and design capabilities, and Dell is late to that game, and its not a 2 year effort to enter that game.  And that experise, that value-add, that intellectual property is core to Apple, SUN, HP, (IBM) Lenovo - they don't out source thier offer advantage.  Dell did.

Its OK to out source your software (eek I am a software guy) efforts if you are a bank.   Or your accounting or boxes if you are a choclatier...but if your central IP is software, or making chocolate - - keep that in house and protect and improve it (for your company) over the years.

Can Micheal Dell keep improving his supply chain - yes.  But the economies of technology are reducing how much the hardware cost, and how much the services costs are.  How much did you pay for your cell phone, or TV set top box, vs. how much you pay monthly to those companies?

Does anyone pay Dell anything monthly?  Some service contracts on servers, yes.  But they don't have a great reputation there......Its not even in thier corporate culture "we will win with better service"....

Solaris is free - your cell phone is free, many databases are free, Linux is free, great office suites (open office) are free - its the monthly support that you are willing to pay for.  And the economies of writing software help - they only have to write it once and can distribute it to millions, so they can charge $0 for it.  Everyone thought the initial Ipods were losing apple money....but the Itunes music store topped a million downloads far ahead of anyone's expectations....

And here is the big "why I don't own dell stock anymore" grenade....breathe deepy before you read on.

Microsoft competes with Dell. 

Has Micheal Dell figured out that every Xbox that ships is one less PC he sells? (Its a thinly guised PC). 
High end gamers used to order from Dell to a large extent....
Not to mention PS2s, PS3s, Nintendos.  McDonalds realized in the 80s that thier biggest competitor was the microwave oven, not another burger chain. 

And will MSFT stop with Xbox?  Not hardly.  Apple ships PCs.  Windows is losing its lock-in abilities and will generate less and less revenue over the coming years.  MSFT will start shipping more "appliances" (ZUNE?) and these are computing devices.  And finally thier own branded servers and PCs.  No question.  Similar to the phone companies branded cell phones - a full MSFT preloaded laptop.  With services revenue.

I use web based services (like right now blogging) more and more - and need less and less a PC to do it.  My 5 year old 256k RAM PIII does quite nicely for gmail, playing web based games, running open office.  The web has killed the high replacement cycles of many PC users.  And this changes the MSFT-INTEL-DELL revenue picture considerably.

And Wall street is slowly figuring that out.  Web services, web portals, web PCs.  Web PCs almost never need a rolling upgrade (one of the really nice things about web services). (Got that one from Mcnealy.)

Throw in some spice of flaming batteries, Bad service reptuation, HP selling more PCs and even the street is wondering what the DELL is going on?

But thats the small tip of the ice berg.  The real under current is that Dell has nothing special anymore - - other vendors meet them on supply chain, ease of ordering, and beat them on engineering and innovation.

And the web services trend has reduced the PC upgrade cycle considerably.  Sorry Micheal - should have read about Carnegie and owning your supply chain, or found some other value add with those billions.  Its gonna be a tough tough row from here on.  Building your own engineering eh?  HP, SUN, Apple, IBM have a big head start.

Its a tough world out there.  I am not sure with HP, Apple, SUN, IBM and MSFT shipping servers and PCs you need  a Dell for the eco-system to work well.  MSFT is your competitor, and by the way a popular component in your product.  Thats gonna make it doubly tough.

Its a shattering prediction.  Dell will cease to exist or start selling other folks products, or be bought out by MSFT.
Thier current value-add is not enough to make it in this jungle.

Update - 2/1/2007 Mike back as CEO, and Dell prepping a hand held game device
the register reports dell is prepping a hand held game device to go up against the Nintendo DS, and PSP.
Whats my take?  If the article is correct, its a winMobile PC with 1 screen.  I already own that, its called my cell phone.  (Granted my video, look and feel, graphics speed are likely less).  But it has no new compelling "Gots to have it" feature (that I can tell).  - Wii remote?  Dual Screens?  Large library of games I already own?

Now, if its a portable version of the XBox, then hats off to Dell.

As to Mike back as the new CEO, there is a saying about an old dog and new tricks....unless Mike has some ambitious new plans that have something in addition to pipeline supply management (which his company is already world class at...) - - I have my doubts