Michael Dell's New Thoughts On Direct Sales

The New York Times' writer Damon Darlin wrote a piece on Saturday discussing a recent memo from Michael Dell to his employees. It appears that I called it right last September, in this post, when I bought a laptop from a competitor, HP, at a Staples store, and wrote about why I had checked Dell first, and declined to buy one of their machines. My sense then was that Dell had missed a sea change in computer purchasing among many consumers. Dell's memo, as related in Darlin's piece, supports this.

Mr. Darlin wrote, in part,


Michael S. Dell, the chairman and chief executive of Dell, who built his business by selling direct to his customers, is now thinking about changing the way the company markets its computers.
“The direct model has been a revolution, but it is not a religion,” Mr. Dell wrote in a memorandum sent on Wednesday to 80,000 Dell employees.

It is the first time that Mr. Dell or any other senior executive has publicly conceded that the business model that was crucial to the company’s success could — and should — be altered. Until now, the company responded with an adamant no when Wall Street analysts or customers asked whether the company would consider other ways of selling.

While Mr. Dell’s memo was short on specifics, he also told employees, “We will continue to improve our business model, and go beyond it, to give our customers what they need.”

“We know our competitors drive complexity and needless cost into customers’ environments,” he wrote. He said their “so-called service divisions” create a never-ending buying cycle with no clear return on investment.

“We intend to break this cycle,” he wrote.

I'm not so sure about Dell's last comment. I have yet to call H-P regarding the laptop we bought. It's performed flawlessly. Frankly, I've had far more trouble from my Dell desktop over the years I've owned it.

However, the important point is that, as is typical, it takes the original leader of a cult to allow for directional change. The acolytes, like the Dell employee who commented on that September post of mine, tend to simply, mindlessly, follow and believe the original, received wisdom of the founder.

Whether any of this will return Dell to its years of consistently superior total return performance is open to question. Based upon my analysis of technology-based companies, it's unlikely Dell will repeat its prior return performance, unless it somehow morphs, like Apple, into a much different product purveyor.

If all Dell does is ally itself with one or more retailers, or opens its own outlets, I doubt that will affect its ability to achieve consistently superior total returns. It might raise revenues, but it's still in a commodity products game. And that doesn't look to change any time soon, with or without Michael Dell.