Dell's running

Once the pride and joy of the world’s largest computer systems builder, consumer products now make up just 18% of Dell’s total sales. That’s probably a good thing in the long run, because this segment is notoriously margin-poor when compared to the less price-sensitive corporate computing market. I can’t blame IBM for giving up on consumers years ago, and I think Dell should follow suit.

via Make a Hard Left, Dell! (AAPL, CTXS, DELL, HPQ, IBM, MSFT, VMW).

That’s right. Flee upmarket Dell. Run, run.

Quoting from the gospel:

Step 2: Entrants grow and improve; incumbents choose flight. As disruptive attackers follow their own sustaining trajectories, they make inroads into the low end of the market or begin pulling less demanding customers into a new context of use. What happens when the disruptive entrant begins to make inroads? […]

Incumbents naturally choose flight. What looks highly attractive to the entrant continues to look relatively unattractive to the incumbent. The asymmetric motivation leads to incumbents naturally fleeing the low end. They cede that market to the entrant. […]

Remember, incumbents focus on delivering up-market sustaining innovations that allow them to earn premium prices by reaching undershot customers. They view flight as a positive development.

  • Tom Ross

    "Remember, incumbents focus on delivering up-market sustaining innovations that allow them to earn premium prices"

    I'm no expert on these theories, but doesn't that sound exactly like Mac and iPhone? If you put it the other way around "take premium prices in order to sustain the company and allow ongoing innovation" that would be Apple's core strategy. Is disruption really tied to low prices?

  • That's right. You're always climbing up the trajectory. You're in trouble when that trajectory overshoots or moves beyond the ability of the customer to absorb the improvement. The trouble is choosing what you measure on the vertical axis: what's the performance measure.

    On the Mac, improvements have come with portability and usability. That has sustained the business during the transition from desktop to mobile computing. The secular shift to consumerized computing (vs. corporatized computing) has also sustained the Mac. Both portability and consumer friendliness are performance measures where Apple has applied resources. Here Apple is an incumbent. Its Mac is an old, stable franchise which is growing nicely but not nearly at a disruptive rate.

    On the iPhone, it's very early days. Apple is an entrant and is defining the market. The iPhone disrupts not only the voice-oriented mobile device market (feature phones) but also the PC market. Think of the iPhone as a very crummy Mac. It and its cousins the iPod and iPad are going to surge into what we consider computing and the growth is and will be phenomenal.

  • Iphoned

    Wasn't Dell always mostly in corporate sales? I am pretty sure it was. Ots forays into consumer were attempts to expand.

  • poru

    I'm old enough (alas!) to remember the days when IBM ruled the enterprise, then was it Compaq (?)… Gateway? … now Dell. They come and go and no doubt make a lot of money in the interim although the latest Dell/Intel scandal indicates most of Dell's "profit" was actually just payola by Intel to keep them from going to AMD. Presumably the SEC and shareholders are less than impressed by Dell's creative bookkeeping.
    I don't know anything about anything but one of my clients is a UK hospital running all Dell crapware and Win XP and they don't have any £££ to upgrade. I suspect most corporations are in the same boat (except the Wall Street Banksters perhaps). As MS in its infinite wisdom only allows one version of Internet Exploder on the same box (it seems) they are stuck with IE6 and can't even upgrade the browser. (They have some legacy apps that only run in IE6.)
    Contrast that with the Apple stores I see around the world full of people actually buying things (with, gasp, their own money). Even in tough times people will spend money on quality, esp. if it helps with the cocoon lifestyle they are opting for.
    Enterprise or consumer — who would you rather have as your market these days?

  • Tom

    Then there’s the impoverished school districts. All budgets have been slashed each year for about three years. Yet Apple continues to have record back to school quarters, like the one it’s finishing now. PC market share and mind share continue to fade. Those college kids that are flooding to Mac laptops, iPhones, ipads, itouches, etc. bring them to their credential programs, all OS X based, and on to their districts, continuing the pressure for more record breaking quarters in that sector.

  • Sam Penrose

    Tom: very astute; Apple has in effect already executed the incumbent strategy for its Mac division. They are well aware of the dynamic, and are milking the decent profits left in the legacy market even as they dominate the disruptor market. The difference is that unlike most disruptors, their cheap/innovative products are quite profitable themselves.