Do you know how many companies in the world make video recorders? Two. And do you know how much those same two factories/manufacturers are worth? Millions and millions of pounds.
Yet when did you, or anyone you know, last buy a video recorder? Years ago, I’ll bet. So the question is, how are these companies making any money in a sector that has very clearly had its day? (Dixons announced almost two years ago that it was intending to stop selling video recorders altogether, and other retailers have since followed suit.)
The trick is to avoid getting stuck in the middle; be an early or late entrant into a sector. The saying “get big, get niche or get out” is, for want of a better phrase, so last season.
The demise of system builder Elonex last week should be a stark warning to the channel not to get caught in the danger zone. The system builder went into administration last week, after making 28 redundancies. Forty-eight staff remain at the firm. Deloitte & Touche, the administrator, is hoping to sell the company as a going concern.
While Elonex differed from its integrator rivals by investing in R&D and licensing intellectual property to other IT firms, its strategy slipped into mid-league mediocrity. It was selling PCs, a product that 1,000 other firms are selling. Furthermore, Elonex went up against one firm in particular: Dell.
Price competition from the PC giant has been impossible for many system builders to cope with. But Dell, while appearing to be in the same part of the market as Elonex, has been much smarter with its business model. Dell has opted for both the ‘get in early’ and ‘get in late’ options as part of its business strategy. It sells either the latest technology, where it ships low volumes but makes high margin, or the more dated kit, where it ships high volumes but makes low margin. Getting caught in the perilous middle zone can lead to a catastrophic strategy of shipping low volume at low margins, which is a trap that unfortunately Elonex appears to have fallen into.
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