Dells Business Model Revenue Model Information Technology Essay

Michael Dell, a student from university of Texas, Austin founded Dell Computers. At first Dell sold upgrades for IBM compatible PCs and then in 1985 they started to sell its own brand of PCs. Dell operated on the direct sales model, taking orders over the phone and building PCs to the customer’s specifications. Dell entered the retail PC channel for several years in the early 1990s, but a downturn in business in 1993 led it to return to its roots as a direct vendor (although the company does work with resellers in some markets). Dell grew rapidly and in the mid-1990s, its sales reached an inflection point, soaring from $3.5 billion in 1994 to $25 billion in 1999. By 1999, Dell had become the number one PC seller in the United States, and was number two worldwide.

This success has taken place against the backdrop of falling PC prices, brutal competition, and enormous losses by other PC makers. Dell has not only survived, but succeeded in this environment thanks to the fundamental advantages of the direct model, and to its continued efforts to improve its execution of that model. It also has taken advantage of its direct model to build strong, stable relationships with the large corporations and other organizations who are its core customers. Unlike indirect vendors, Dell knows who its customers are and has a great deal of information that it uses to provide a high level of service and support, to target customers for retention and expanded sales, and to sell additional third party hardware and software. But even Dell has not been immune to the turmoil in the PC industry. While its most recent 26% growth rate continues to outpace the industry as a whole, it has not been able to match its earlier growth rates of 50% a year, and was hit hard by the slowdown in PC sales in late 2000. The result has been a sharp fall in Dell’s stock price and a reminder that Dell is vulnerable to the brutal price competition and cyclical demand of the PC industry.

Nature of products/services

In making an examination of the corporate information relating to the Dell Inc company, it is apparent that the Group’s principal activity is said to relate towards the designing, developing, manufacturing, marketing, selling and supporting a very vast range of computer systems. Dell is said to operates within four main segments and these are large enterprise, public, small and medium business and consumer segments. Essentially, large enterprise customers are said to include large global as well as national corporate businesses. Among the public customers of Dell include educational institutions, government, health care, and also law enforcement agencies. What is noted here is that small and medium business focuses on providing small and medium-sized businesses with what is said to be the simplest and most complete standards-based IT solutions and also services, that are customized in order to meet their needs. It is apparent that consumer business sells to customers via Dell’s on-line store, over the phone, and also through retail. Dell is said to offers a wide range of product categories and these including servers, mobility products, software and peripherals, desktop PCs, networking as well as storage (Corporate Information.com – Dell Company, 2010).

Dell’s Business Model/Revenue Model

A busines model taxonomy like that of Dell is capable of being utilized to identify competitors and is needed to provide a good understanding of their target-market and this is especially in electronic and computing business competitors which can change very fast. The business model is said to be the term used to describe the way that Dell does business and the revenue model is said to lay out the process by which Dell makes money by specifying how it is going to charge in relation to the services provided (1000 Ventures.com Business Models, 2010)

It is submitted that six main components of a business model like is used by Dell and these include the following:

Value Proposition – this is a description of the problem relating to the customer and the solution that addresses the problem as well as the value of this solution in relation to the customer’s perspective.

Market Segment – This relates to the group to target, to recognize that different market segments tend to have different needs and there are chances of innovation to be unlocked when a different market segment is targeted.

Value Chain Structure – This relates to the position and activities of Dell in the value chain and the way that it captures a part of the value which it is said to creates in the chain.

Revenue Generation and Margins – This relates to the way that revenue is generated, the cost structure, and also the target profit margins.

Position in the Value Network – This relates to the identification of competitors, complementors, and any sort of network effects which can be utilized by Dell so as to be able to be utilized to deliver more value for Dell customer.

Competitive Strategy – This relates to the way that Dell attempts to develop a sustainable competitive advantage and to utilize this to improve Dell’s competitive position in the market.

How Does Dell Use E-Commerce to Improve Supply Chain

When internet technology arrived, Dell was quick to set up the ecommerce

Processes that would enable it to also sell directly online to customers. Selling online allows the whole process to be automated and more efficient. Since 1996 when Dell opened its website www.dell.com for ecommerce, the company has had huge sales success. By 1997 the company recorded $1 million in online sales. By 2000 the company’s internet sales had reached $50

Million a day! If we go back to our example above, the customer, Liam, would go to Dell’s Irish website www.dell.ie to buy his notebook computer. The full

Product range is online with detailed information to help him make his decision. He simply follows the easy, automatic instructions that come up

on screen. These allow him to customise the computer he wants with the features he needs. He can increase, say, his hard disk space and see the difference that increase makes to the overall price. Then he is given a variety of options on how to pay, either directly online or, via a customer service operator. There is even an automated leasing option available through a financing arrangement that Dell has here with Permanent TSB. Liam’s order is then passed automatically through to the production department at Dell’s factory in Limerick where it will be manufactured to his specification, tested and shipped out to him. All of the systems relating to the sale are done through e-commerce: order placement, order tracking, payment processing, inspection, testing and delivery. Similarly, internally at Dell, the whole purchase and procurement of materials is automated between Dell and its suppliers. At www.valuechain.dell.com, Dell shares information with its suppliers on a range of topics, including product quality and inventory.

The crucial benefit is the total automation of the whole process, which not

Only makes it faster and more efficient, but also much more cost effective,

Especially given the volume of business involved. Dell’s global website

Receives more than 1 billion page requests per quarter at 80 country sites

in 28 languages and 26 currencies. Dell’s approach to e-commerce simulates the benefits of face-to-face contact between the buyer and the seller. This ensures that staff can be focused on delivering a quality product and providing excellent customer service and support

How Dell’s E-Commerce Focus Improves Customer Service

Dell has created many features and services online to help the customer see the whole purchasing process clearly. The premise of Dell’s business is selling directly to customers – customers tell Dell exactly what they want and Dell provides them with the goods directly. As well as being able to customise the product, customers can track the progress of the order as it is produced and delivered. This can help the customer see the stages of the process and likely delivery times. Customers can create and view their service records online. This includes product support, shipment and delivery dates. Each purchase comes with a service tag code, which can track the model bought and its service requirements. This allows Dell customer service representatives to quickly and efficiently handle requests. This level of 24 hour customer service and fast response time helps Dell build strong customer relations, which of course is crucial for the company in its understanding of customer needs. It is also a very cost-effective way of providing sales and support – cost savings which can be passed on in the form of better prices to customers. Success depends greatly on the efficient management of the website. The customer must have a convenient experience when shopping online and have faith that Dell will successfully complete the order and safeguard financial details. Customers need to be comfortable using paperless transactions without face-to-face contact. It is crucial that customers consider purchasing online as an alternative to the traditional method of going into a retailer and buying a product off-the-shelf. Dell is focussed on enhancing its image and relationships, not only with customers, but also with employees and the wider community. To do this, the website is also used as a communication tool for news, press releases and general information to help customers, employees, the media and prospective employees find out more about the company.

Limitations of E-commerce to the business (DELL)

Technological

Lack of universally accepted standards for quality, security, and reliability

Telecommunication bandwidth is insufficient (mostly for m-commerce)

Software development tools are still evolving.

Difficulties in integrating the internet and EC software applications and databases.

Special web servers are needed in addition to the network servers (added cost)

Internet accessibility is still expensive and/ or inconvenient

Order of fulfillment of large-scale B2C requires special automated warehouses

Non-technological

Security and privacy concerns deter some customer from buying

Lack of trust in EC among consumers

Many legal and public policy issues, including taxations, remain unresolved

National and international government regulations sometimes get in the way

Difficulty in measuring some benefits in EC. (e.g. advertising,) lack of matured measurement methodology

Some customers like to touch and feel the product

Adamant to change from physical to virtual store

Lack of trust in paperless, faceless transactions

Insufficient number (critical mass) of sellers and buyers (some cases) needed to make profit

Increasing number of fraud on the net

Difficulty to obtain venture capital due to the dot-com disaster

Limitations of E-commerce to consumers

Physical product and delivery uncertainty (the consumer cannot be sure of the condition of the product he/she is buying. The delivery time can sometimes be longer than expected)

Perishable goods (Electronics devices such as computers need to be handled carefully. If not they might get damaged during shipping and delivery)

If a product is damaged, returning the good is difficult and sometimes even impossible. The consumer has no guarantee of getting a refund. The cost of returning the goods (posting) has to be sometimes handled by the consumer.

Privacy and security (The payment details of the customer might get stolen over the internet due to lack of security thus leading to fraud)

The customer has to go through the products with the limited knowledge he/she has. There are no employees to help guide them into buying exactly what they are looking for.