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White boxes come back

Dell’s move makes official what ComputerUser readers have known all along.

The story of the week escaped the notice of many of the major technology analysts: Dell Computer has decided to sell computers through dealers. This may not sound surprising until you realize that Dell has shunned dealers since day one in favor of a direct-marketing approach. A key component to Dell’s dominance is supposed to be that it eliminates the middleman from the equation and can therefore offer lower prices and more up-to-date products as a result. So what’s up with adding a middleman to the equation?

To me, the move makes perfect sense. Dell is able to have higher margins than its competitors not because it eliminates the middleman but more because it eliminates inventory. Because it automated the build-your-own PC concept to near-perfection, it never needs to have computers siting on the shelves gathering dust and losing market value. It’s called just-in-time (JIT) manufacturing, and it is where the rest of the industry is trying to be. If you want to figure out just how desperately Dell’s competition wants to get to JIT, think of the HP-Compaq merger.

Dell spokespeople have said that selling PCs to dealers will not change its JIT philosophy. Dealers will be treated like all other made-to-order purchasers. Still, you might wonder why Dell wants to share some of its business with dealers when it has done quite well for itself without the dealers for so long. Well, as good as Dell has been about the manufacturing and sales aspects of its business, it has always been behind on service. If your Dell PC has a hardware problem, you need to send it back to the factory and wait up to two weeks to get it fixed. This is a problem for nearly all businesspeople, which is why most Dell customers spend a lot of money either fixing their own machines (and voiding the warranty in the process) or hiring others to fix them.

The hidden cost of service and support is why my stock answer to people who ask me where to buy a PC is, “Go to a local dealer with a good reputation for service and support. You may pay a little more than you would for a Dell in the short run, but you’ll save that money several times over in the long run.” (And that is why friends who buy from Dell despite my advice get me so hot under the collar.) And this is why I was not surprised to read in the Wall Street Journal on Tuesday that Frank Muehleman, senior vice president of Dell’s small-business unit says he hopes “to attract dealers that provide training, installation, repair, and other services” rather than simply reselling Dell’s boxes.

Dell’s move validates what our readers have been telling me for years: PCs are not simply commodities. They need almost constant care. And if you find a dealer that can provide that care as part of the sales process, it is more than worth a little extra money to avoid lost productivity. Small wonder, then, that the statistics from IDC and elsewhere indicate that the white-box segment of the PC business has surged in the past year while the rest of the industry has struggled through the downturn. Small-business users are finally internalizing the total cost of ownership equations, and buying accordingly.

James Mathewson is editor of ComputerUser magazine and ComputerUser.com

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