Dell’s Deal On The Microsoft Surface Pro Speaks Volumes On Companies And PC Market

What never changes is that the PC industry is in an ever changing state of change. (Say that three times fast). Over the last few years, the PC’s biggest competitors have been tablets but now I believe it is itself. This has resulted in declining margins on hardware and results in an environment where service, support, and accessories are where most of the profits reside. As a private company, Dell can basically do whatever they want, shifting quarter to quarter if it pleases them. This is one of the many benefits of being a private company and they can do things that nobody else is doing and take risks that nobody else would take. A good example of this are their new semi-custom servers, Dell’s new DSS business, which I believe shortly will be on a $1 billion run rate. One of the risks in the PC market Dell is taking is what was announced this morning. Dell announced they will now sell, support and service the Microsoft Surface Pro line. As much as this says about Dell’s actions as a private company, this says a lot about the desire of the Surface Pro and a lot about Dell sales and ProSupport, a service Dell proudly sells as one of their most innovative service products. Starting in October of this year, Dell will start selling the Microsoft Surface Pro and accompanying accessories in North America, later expanding across the world in early 2016. This is a huge turn of events from back in the days when all of Microsoft’s partners were livid with them for launching the surface line of tablets back in 2012. Obviously, there was demand for the Microsoft Surface Pro, but before they would buy, enterprises wanted a level of global support and service Dell could provide. Interestingly, the Microsoft Surface Pro competes head to head with some current products that Dell offers like the Venue 8 and Venue 11 Pro. They also have a multitude of 2-in-1s that effectively do similar things that the Surface Pro. I am hopeful that in the coming weeks and months, Dell will provide exacting specificity on where each of the Surface, Venue and Latitude 2-in-1s should be marketed and sold. Or in simpler terms, which customers and in what use cases should a Dell salesperson recommend one over the other. I have a hunch that Dell will spend most of their R&D effort optimizing for use cases with a vertical aspect, like healthcare, military, manufacturing, transportation, and retail versus a horizontal productivity bend. I personally spent quite a bit of time with Dell’s Latitude 13 7000 series 2-in1 and I found it to be very useful, versatile for business and built like a battleship. Battleships is what the verticals are asking for and I believe Dell will be more focused on those areas in their product line. Dell finds themselves in an interesting share position, as they cite IDC, which has them placed in the number two position globally in commercial tablet share, second only to Microsoft. Dell believes that by offering both the #1 and #2 options in the market, they will be able to offer the right services and solutions to their customers regardless of which choice they make. Dell could have a very hard time balancing on the fine line between offering the best solution and staying #2 in the commercial tablet market. The two are not mutually exclusive, but every time they sell a Surface Pro, they’re not selling a Venue or Latitude that could have worked towards their share. But then again, what Dell cares about is dollar contribution margin, so for them it’s a moot point aside of bragging rights. In summary, this says as much about Dell as it does the state of the PC market. Dell as a private company is nimbler, faster, and willing to take quicker and more risks to advance its dollar contribution margin objectives, and even if this means selling, supporting, and servicing your competitor’s hardware, then so be it. It also says a lot about the value of a global, enterprise sales, support and service. The Microsoft Surface Pro may have desired by certain enterprises, but without Dell’s ProSupport, it was a no-go. Never say never when it comes to the PC market and Dell.
Patrick Moorhead

Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.