“Dell has no readily-identifiable, durable, competitive advantage over industry peers even if its prospects for continued profitability appear solid,” Jaded Consumer writes for Seeking Alpha. “Dell is also a commodity vendor. When selling commodities (in the absence of market manipulation), sellers bid each other down in the fight for sales and to choke off each competitors’ margins.”
“Dell is just a box vendor. The math on commodity vendors is not good. Without a differentiating feature like customization (which, being now standard, is no longer differentiating) or single-source software (which HP can offer to enterprises and Apple can offer to consumers), one expects Dell to compete chiefly on price against rivals like Acer and Lenovo for the world’s commodity PC business,” Jaded Consumer writes.
“Dell has serious competition, even as it claws back the top-PC-vendor crown from HP. Fighting on price has an unsurprising result: reduced profit margins. Anyone surprised by this hasn’t thought about how the business works. In the PC business, margins can get so thin the size of the profit can depend on the fees manufacturers glean from software vendors to install teaser applications and other garbage-ware on their customers’ computers before they are shipped — a practice that is so irksome that some buyers now actually pay resellers to remove the advertisement-ware, which in turn threatens the manufacturers’ ability to make profit on the machines at all,” Jaded Consumer writes.
Jaded Consumer writes, “Michael Dell, who once famously said that if he ran Apple he’d close shop and give the money back to the shareholders, has had to watch Apple’s market capitalization pass and dwarf that of his own company… Yet, it’s much worse even than that: Michael Dell has had to watch Apple beat Dell in Dell’s own area of strength — supply chain management. Is there nothing Dell can do that others can’t learn to do better?”
“To avoid the commodity competition trap, Apple must maintain the distinctiveness of its products and work to increase the value of its platform. Apple has some advantage here, though. The fact that Apple need not pay an operating system licensing fee to an outside vendor for each hardware unit sold means that Apple’s marginal costs will be better than other commodity vendors’, ensuring that in a cutthroat commodity fight Apple has an edge in lowering unit costs,” Jaded Consumer writes.
“In short, if Apple and a competitor were to sell the same hardware at the same price, Apple’s profit could still be higher on each unit — because Apple owns and need not pay for the operating system software every vendor must install. Still, falling margins isn’t fun for anyone. Apple had best fight to maintain and build distinctiveness, to better resist being treated as a commodity vendor in the PC space,” Jaded Consumer writes.
“For Dell, it’s too late. Unable to make a distinctive or profitable product in the music space, Dell stands as a vendor of commodity PCs and their commodity peripherals (while hoping customers don’t need printer supplies in an emergency, and can wait for Dell to ship them),” Jaded Consumer writes. “Dell’s profitability will depend on its ability to build machines more cheaply than competitors like Lenovo and Acer while offering them at the prices low enough to compete against rivals fighting for share.”
Jaded Consumer writes, “My vote on Dell shares: don’t own.”
Much more in the full article here.
Michael Dell – prolonging the agony in order to line his own pockets. Be a man, Mikey: SIDAGTMBTTS.
Never been to hell unless you’ve had a dell
Big surprise. Another poorly researched, near libelous hit piece filled with half truths against a MAC competitor is being posted on MDN. Conspicuously absent is any mention of Dell’s revolutionary Ditty. MAC sheep are silently fear the re-introduction or the world’s best MP3 player. You want a competitive advantage? The next version of Ditty will come in brown and Ditty Socks will be available on day one.
Your potential. Our passion.™
> The next version of Ditty will come in brown and Ditty Socks will be available on day one.
ZT is not very clever these days…
And only Dell would think of a product name that rhymes with a descriptive “S(h)” word. How appropriate if it was re-released in brown.
“MAC sheep are silently fear…”
what’s that internet joke?:
your ??? are ???
Good article.
“Apple need not pay an operating system licensing fee to an outside vendor”
This one always kills me. Certainly designing, developing and maintaining Mac OS X is FREE. Highly educated programmers ALL volunteer and donate their time to Apple. Steve Jobs just locks all those computer geek engineers in a basement somewhere with ample supplies of Jolt cola and pizza and waits for the results.
Who the F are these analysts kidding?
Market capitalization just before the bell this morning:
AAPL: $150.18 Billion
DELL: $43.92 Billion
Apple’s worth over three times what Dell is.
-jcr
@SIDAGTMBTTS
Waaaaay to much text messaging. Seriously you guys.
“Conspicuously absent is any mention of Dell’s revolutionary Ditty.”
Oh man, I’d just about forgotten about that. I hear that Dell’s about to jump back into the portable music player market again. I wonder how much they’ll lose this time?
-jcr
“Certainly designing, developing and maintaining Mac OS X is FREE. “
Not free, but considerably cheaper than paying Microsoft a royalty per machine.
The reason why most PCs are crap is that Microsoft gets the bulk of the profit on any new machines sold. The hardware makers are operating on razor-thin margins.
-jcr
Hats off to Dell for showing us the ” build to customer’s spec concept “. Apple has mastered that very well. Best advice to Michael Dell is: ” sell the company and give the money back to it’s shareholders “. Apple will continue to thrive as providing it doesn’t decide to sell “junk” computers.
Did you know that Dell spelled backwards is LLED?
Zune Tang Returns!
Hey Mikey I got two words for ya: “Silicon Graphics” Karma… you know what it is..
@ GoneFull:
All your bases are belong to us!
http://en.wikipedia.org/wiki/All_your_base_are_belong_to_us
Ya them Dell’s are great alright. My Mom bought a Dell at Best Buy a week ago. It wouldn’t even turn on. She returned it and Best Buy gave her another one. Well, she finally called me after she kept getting a Fatal Error Message.
You all know how this story ends.
I went with her to Best Buy, returned the Dell and left with an iMac. She’s thrilled with it, “I can’t believe how easy everything is”.
Crap Dellware is Apple’s best marketing affiliate.
Dear Dell,
Thanks for teaching us all how to squeeze the supply chain, warehousing, custom built computers, e-commerce and all those other cost cutting measures.
We appreciate it.
Bye.
From the article: “Apple has some advantage here, though. The fact that Apple need not pay an operating system licensing fee to an outside vendor for each hardware unit sold “ … not precisely true. They may not have to pay an “outside vendor”, but they DO have to pay the engineers who write the code. A good OS is hardly something you grow in a garden or find in the street, it has to be built line by expensive line. Then paid for, a tithe from every sale of the OS – either pre-loaded or off the rack.
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About ZT, guys. You can’t seriously believe any of that was anything but a joke. Seriously? We are really supposed to be terrified by the thought of an iPod wanna-be delivered in an innovative brown (MS’s color) with a sock? A break … could someone PLEASE give me a break here?
Apple make a small profit on sales of their OS and the costs for development are factored in to the cost of the computers they sell.
At a certain point, OS development breaks even. After that, its part of profit.
NO, OSX isnt free, but now they HAVE it, they dont have to pay anyone for it.
It is also a major differentiator between Apple and the rest of the PC market.
The analysts arent great, but in this case, they are right.
“The fact that Apple need not pay an operating system licensing fee to an outside vendor for each hardware unit sold means that Apple’s marginal costs will be better than other commodity vendors.”
I partly disagree. Apple plows a lot of R&D;dollars in its OS, and these costs are fully passed on to the consumers. In other words, Apple OS cost per box are as high (or higher) than those of a vendor who merely pays the Microsoft geld.
Of course, MacOSX is far superior …
I see Dell and some of these other vendors leaning very heavily on Linux. Custom OS for your PC. The Linux Desktop has been laughed at for years, but once Dell puts a serious push behind Ubuntu and HP puts a serious push behind SUSE, MS will suddenly find themselves scratching their heads going, “Oh Crap! Now we’ll actually have to compete with somebody.”
I’m not discounting Apple, I think OS X will grab 30-40% of the market within the next decade, but I don’t think we’ll ever see one OS dominate the market again. That is a very good thing for everybody. It will force the actual adoption of open standards and provide greater choice for consumers and businesses.
@Dude,
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(to your second comment)
THANX superdude!
You think so…
The difference is that Dell’s cost for the OS on each unit is [Cost + X] and Apple’s cost for the OS on each unit is just [Cost].
Dell is paying Microsoft a premium to make and maintain the OS. Apple pays its employees the cost without being socked with the premium.
Plus, as noted, Apple’s OS helps differentiate the hardware.
I will be a happy man when this type of story is written about Microsoft.