Dell shows what it Cannes do

10 Jun 2004

Michael Dell (pictured) said recently that his biggest business mistake was not getting into the printer business 10 years ago. Now his company is making up for lost time: printers are the fastest growing product line in Dell’s history; surpassing sales of desktops, notebooks and servers.

As the company previewed a range of new client products at a launch in Cannes, France, executives outlined Dell’s push into new and existing markets, supported by upcoming handhelds, desktop PCs and, intriguingly, inkjet and laser printers. “Being in the printer market allows us to compete in the greater systems category: clients, handhelds, servers and storage,” explained Tim Peters, vice-president and general manager of Dell’s imaging and printing business.

Dell has been selling own-brand printers in Europe for a little over five months and slightly longer in the US. To support this push it has expanded its range of printer partners. In January of this year Dell announced deals with Fuji-Xerox, Kodak and Samsung in addition to its long-standing agreement with Lexmark.

The company insists that its own printers are not simply products from other manufacturers with a different logo on the chassis. Unlike its partners’ products, which have varying control panels, Dell has opted for consistent interfaces on its printers. This means that if a business buys a few different models, users will be familiar with each one.

There are other little touches aimed at simplifying matters for the user. For combined PC and printer purchases, Dell will install the correct device drivers on the PC in advance to make installation and setup easier. Another feature is management software that monitors when the ink levels run low in a printer and alerts the user to buy a new cartridge. According to Dell, this means that its printers should, in theory, never run out of ink.

It also means that users no longer have to remember cartridge numbers when buying from a computer shop, or run the risk that the store doesn’t have the correct part in stock. Instead, users can order the ink online from Dell or by calling a local number.

However, there are some drawbacks for users: ink cartridges from Dell only work with Dell printers and refilling cartridges is discouraged as the management software will not work with them. This toner monitoring feature is not unique to Dell, but the company claims it offers a convenient way to replenish printer stocks as they can be ordered directly from the manufacturer.

The printer sector is analogous to the shaving market: the razors are sold cheaply because the cash cow is the blade — frequently used, regularly replaced and a lucrative supply of income. Certainly, printing is a cut-throat business — heavy discounts on hardware are often a feature when bidding for large customer contracts because manufacturers know they can recoup the money in consumables sales.

Peters said that Dell’s printer business will stand on its own feet and won’t be subsidised by other parts of Dell’s organisation. “We’re not going to floor the prices for printers and make it back on servers,” he asserted. In reality, it will reinvest the profits made on consumables back into its printer division to offset the low prices at which it sells hardware.

It is helped in this aspect by a keen demand for Dell consumables that has surprised even company officials. The company is not adverse to offering discounts while it attempts to grab market share. Hewlett-Packard has already announced new laser printers and Dell is preparing its first colour laser for launch at an undisclosed date later this year. This is one market that is likely to get very bloody.

The PC market, Dell’s traditional powerbase and where it made its name, held much of the focus of the summer announcements as Dell offered a sneak peek at its impressive new line of desktop PCs, due for launch in the coming weeks. This has been happening against a backdrop where industry analyst figures over the past few quarters have indicated much faster growth rates for notebooks than for desktops as businesses embrace the concept of mobile workforces.

However, this is an example of statistics hiding a trend, claimed Neil Hand, director of worldwide marketing for Dell’s enterprise systems group. “Desktops outsell notebooks by a factor of about three to one, although they are probably only growing at mid-teens percentage rates compared to notebooks, which might be 25pc or so,” he pointed out. For that reason, Dell will continue to invest in desktop systems, he added.

What has been noticeable in the market is the slowing down of refreshes within desktops. Many businesses that last bought PCs prior to the year 2000 are only now getting around to upgrading them again.

Dell partners Microsoft, Intel and the chipset maker ATI were also on hand in Cannes to showcase their respective technologies, with new developments due soon.

As for handheld PCs, the outlook is unclear. Recent figures from the industry group Canalys have suggested that the handheld market may be due for a shake-up. Hand acknowledged that in the business market, handhelds are not fulfilling customer needs. To address this, Dell has increasingly focused on adding mobility and connectivity options to its Axim handheld range. Hand also hinted that adding, for example, BlackBerry-like capability to a future Dell product would not be a difficult task. “It’s very easy for us to take the Axim product line and offer converged devices over time. That’s an area you’re going to see us expand into,” he said.

Although the two-day event was heavily product-focused, services were also covered. For an organisation that considers itself a product company, Dell’s services business nonetheless accounts for US$3bn in revenues. Perhaps we shouldn’t be surprised: independent research indicates that ongoing product maintenance costs far more than initial product purchase. Dell’s services growth has been directly in line with product development and the services business exists to support new or existing hardware.

Typically though, Dell thinks it can do things its way. “We don’t think the services business works fundamentally in a different way to the hardware business,” said Aamir Paul, head of services marketing for Europe. He explained that Dell has broken down a typical desktop installation into standard, repeatable modules. In the same way as it has done with its PCs, Dell plans to offer a ‘build to order’ model for customers. Depending on their requirements, different ‘building blocks’ of services are put together, instead of having customised services that are different every single time.

That, in a nutshell, sums up Dell’s approach to pretty much every element of the IT market in which it plays. It also helps to explain why, for example, there is still nothing to report about a possible Dell Tablet PC. The company’s take on the market is that no consistency has yet emerged between the various tablet types. Without that crucial factor, Dell can’t go after this market sector as it has with others. How can you drive a standard where there is none? Everything else, it seems, is fair game.

By Gordon Smith