Dell's fading star shows difficulty of remaining on top

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June 03, 2007|By Andrew Leckey | Andrew Leckey,Tribune Media Serevices

Eras don't last long anymore. Take the era of direct sales of computers, for example. It was fun while it lasted, especially for entrepreneur Michael Dell.

It spawned a notable case study in corporate innovation that was extolled in business school pulpits worldwide. Lectures, essays and test questions were built upon it, while competitors scurried to emulate it.

Popular culture adopted it. From 2001 through early 2003, Steven the Dell dude was a phenomenon on commercial airwaves, proclaiming his catchphrase: "Hey, dude, you're getting a Dell!"

Founder Michael Dell had pioneered direct sales of desktop computers, an efficient "made-for-you" concept transacted by telephone and the Internet. The strategy reduced inventory, produced cash quickly, avoided costly retail stores and permitted lower prices.

It was based on a belief that computers are a commodity.

This was applauded as corporate thinking outside the box. It made loads of money for Dell during its era of industry domination.

That is, up until notebook computers became popular and consumers flocked to retail stores to buy them. Rubbing salt in Dell's wounds, Apple Inc. connected with the public through flashy stores offering sexy computers.

It was a bad omen in early 2003 when the actor who played the Dell dude was arrested in New York City for possession of marijuana. It made nationwide headlines and Dell terminated the ad campaign.

But far more important, archcompetitors had begun to catch up to Dell in efficiency. By 2005, the brilliant idea was beginning to seem pedestrian.

So Dell has climbed back inside the box: It is opening retail stores to sell its products and also will offer desktop models in Wal-Mart stores. The downside is higher inventory cost and less money to plow back into the business.

Wal-Mart itself is under pressure because its longtime formula has lost momentum. Other companies such as Gap Inc. and Home Depot Inc. enjoyed glorious periods when marketing and products could do no wrong.

Like an actor formerly in a hit TV situation comedy, a dominant corporate brand can deteriorate into typecasting if it doesn't evolve. Eras of dominance are growing shorter as competition increases. There are still plenty of direct computer sales, but Dell's unique era seems past.

Andrew Leckey writes for Tribune Media Services.

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