Time for Dell to dive in
Simplification, that's the name of the game. But Dell will have to do more than reorganise its channel if it wants to make in-roads into Compaq's market share. It is time for Dell to get serious about the channel.
The company has been putting pressure on Compaq over the past few months, and its share of the European market in Q2 increased from 3.1 per cent to 5.2 per cent. That does not sound like much, but these are Context figures and Context is almost certainly not picking up all the direct sales, particularly in the UK. On top of this Dell is likely to get access to Windows NT 4 earlier than Compaq in the current quarter. That won't do Dell's corporate sales any harm.
Compaq is under pressure from other rivals as well. IBM increased its Q2 share from 9.2 per cent to 9.7 per cent and its results were better than many expected. Compaq's market share has been eroded as a result.
It is responding by cutting prices to levels that will give the likes of Digital and Olivetti serious heartburn. The scale of the price cuts reflects the determination of Compaq to reclaim its lost ground.
The firm has a lot on its plate at the moment. It is trying to become a 'computer company', has a new networking business to get off the ground and attacks from the network computer vendors to fend off. But it has one major advantage over Dell - the channel.
Yes, resellers are fed up with the price cuts and the effect they have on revenues and on margins, but they accept them as a fact of life. Yes, they could try to switch-sell, but a user like Compaq keeps its channel clean. It deserves credit for that. But resellers would also welcome a new alternative, especially if that alternative offered a high-quality range of machines from a well-established vendor.
Now is the perfect time for Dell to get serious about the channel and embrace resellers. And it ought make its move before the confidence in IBM that is slowly returning to the channel is fully restored.
A focused channel that gets more support and less competition from Dell's direct sales could be enough to challenge Compaq's dominance. If Dell stays out of the channel now it could miss its chance to take over at the top of the PC market one day.