B Gruff <bbgruff@xxxxxxxxxxx> espoused:
> On Thursday 08 March 2007 10:25 Mark Kent wrote:
>
>>
>> The problem with that point is that it misses a key issue, that of
>> economies of scale. Dell can produce machines at a fraction of the cost
>> of a small independent integrator, so competing with that, even with a
>> free operating system, would be very difficult indeed, at least on
>> price, anyway.
>
> Oh yes.
> Bear in mind though that as far as Dell+Windows is concerned, the Dell
> "economy of scale" really does come into play. Dell (and yes, anybody else
> who sells as many as they do) gets a big discount on the Windows licence
> from MS. Presumably the same is true for MS Office. In addition, they are
> paid for the "crapware" that they install.
>
> I would have thought that Linux does away with most or all of that advantage
> for them? If so, Linux is actually something that they would perhaps
> rather *not* install .... but if they don't somebody else might.....:-(
>
Exactly and precisely Dell's dillema.
The Dell Dilemma by Mark Kent and cola
======================================
Dell hold up their margin by two means, firstly through huge scaling
economies by buying bulk components, having tough buyers and several
suppliers, and having a slick production line. They keep it simple by
soak-testing a few functional designs, and only building to those
designs. The avoid bespoke work unless it is in very large numbers, and
even then, only from their stock components. This helps to keep the
nuts & bolts prices of each machine as low as possible. The follow this
up by avoiding using retail stores and any kind of middle-man, instead,
they keep their margins still higher by selling by web/phone/mail-order
and delivering directly to the door. This combination of buying direct,
making a few simple designs and selling directly to the customer has
kept them a successful business for some time.
Add to this, as they became larger and more powerful, they began to get
greater and greater discounts from Microsoft, but only on the basis of
selling only Microsoft Windows, not changing the desktop, not install
netscape or realplayer, and so on. However, the overall saving on
licences is so huge that it's worth every penny from their viewpoint.
All was fine until Linux started to do so well, that thousands of people
on their website requested PCs with linux on. In order to test the
water, Dell promised to supply such machines. Unsurprisingly, they
received an irate response from Microsoft very soon after, explaining
what would happen to their special discount structure if they did such a
thing, /even if/ they sell for more than the cost of a Windows machine -
such is Microsofts fear of Linux and power over Dell.
So the Dell Dilemma is at what point to offer a linux PC. Do it too
soon, and Microsoft will certainly go ahead with their threats to change
the licensing model for Windows, which would be enough to land Dell in
all kinds of financial problems; do it too late, and Dell's sales will
be so low that they will be left with unsold inventory which becomes
obsolete - that could well send them out of business.
The Dell Dilemma - what is the right time to push a linux pre-installed
machine?
--
| Mark Kent -- mark at ellandroad dot demon dot co dot uk |
| Cola faq: http://www.faqs.org/faqs/linux/advocacy/faq-and-primer/ |
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