With shares of Dell Inc. (NASDAQ: DELL) down to $25 from the $40 price at which it began 2005, Michael Dell is rethinking the direct selling strategy that made Dell one of the most successful computer companies in the world. In a memorandum sent to Dell employees on Wednesday, Mr. Dell wrote that "The direct model has been a revolution, but it is not a religion." Some analysts have suggested that Dell should try to become the exclusive printer and computer supplier for an electronics retailer. BloggingStocks's Gary Sattler has even suggested that the company merge with RadioShack (NYSE: RSH).
But here's the problem: What exactly is Dell's competitive advantage in that arena? Dell became a $50 billion company by offering computers manufacturer-direct, cutting out the middleman, and being the lowest cost producer of its product. With companies like Acer taking Dell on on price, Dell's competitive advantage may just be a thing of the past. Computers are now a commodity, and the company that can do it with the lowest cost wins. Margins are shrinking, and it just isn't the great business it once was.
I wish Dell the best of luck in reinvigorating his company, and he's a brilliant enough man that he just may be able to do it. But if he can, it will be by answering this question: "What can Dell offer consumers that no one else can?"
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