Can Dell Recover Directly?

What Dell Computer may need is a kind of superhero to save the company. What it may need...is exactly what it may already have.

"[Michael Dell] wouldn't have gotten where he is today if he didn't have that initial ability to climb to the top of that mountain," said Levy. "He's a tenacious businessperson, he has succeeded where so many others have failed. Let's look at the personal computer manufacturing market for a moment. It's littered with the carcasses of dozens and dozens of companies that flared brightly and then exploded, or just simply faded away. Dell continues, it's still growing, it's still a large and dominant company, but certainly relative to what the market had expected it to be by now, it's falling short. But I wouldn't count Dell out simply because this guy does have a very solid track record, and you don't play games with someone who has quite literally redefined the industry."

There are cards stacked against Michael Dell, and they're not in the courtrooms. The PC industry is growing at a slower rate - only 8% to 10% this year, analysts estimate, and 2008 may not be much better. In addition, Levy points out, "prices are coming down 10% every year. So there's significant margin pressure on all players; they're all challenged to squeeze out efficiencies in their supply chain such that they can continue to sell large volumes of equipment at a profit.

"Ten years ago, Dell was an order of magnitude ahead of its nearest competitor in that regard," he continued, "and I think the market has, to a large extent, caught up with Dell. Certainly Dell still has a leadership position in terms of being able to leverage those efficiencies, but it is no longer the sole, dominant player that it once was. And if you look at its performance over the last two years relative to HP's, I think you can see that HP has gotten its game on. It's competing pound-for-pound very effectively against Dell in that regard."

So does Michael Dell have reinvent the Dell Direct model? No, said Levy, he actually needs to rediscover it.

"I think the real key for Dell is not necessarily differentiating their product, because I don't think there's a whole lot of room for them to do that," he said. "I think [the key] is going back to base principles on their service and support. I think it's going back to base principles on quality and quality of service. Their quality has to come up. There has to be a perception that when you buy a Dell, you are getting something somewhat better than you would get from a white-box manufacturer or from another vendor. Right now, the market does not perceive that. The brand in many respects damaged, and Dell needs to counter that perception first.

"Certainly Dell's year-over-year market share dropping almost three points is as close to free fall as you get in this market," Levy continued. "Certainly it has a ways to go to convince existing customers that they should come back, when it's time for them to buy a new computer. It can also convince other customers who are now gun-shy about considering Dell because all of the negative publicity that the company has had over the past year or two. That is an incredibly tall order for a company that traditionally has gone about its business in a very quiet and unobtrusive manner."

Up to this point, the company's efforts have been expended internally, on retooling and ramping up production of new product lines such as Dell's high-end XPS desktops and notebooks in the consumer segment. But they've never been known as an innovative marketer, and that will have to change, Carmi Levy believes.

"They're going to have to learn how to be leading edge in messaging if they want to capture the attention of the market like their competitors have in recent years," he told BetaNews. "This is an all-out communication war for Dell, and it's going to have to be communicating out of literally every pore of its being if it hopes to have its target market listen and understand and appreciate its message."