Dell's War

Bloggers have been railing against its customer service. Its printer rivals, like Xerox and Lexmark, have been attacking Dell's vulnerability when it comes to providing consulting and non-hardware sales to customers.

And while Dell continues trying to make it up to Wall Street for reporting disappointing revenue during its most recent quarter, its executives can't even look to the heavens for a reprieve. This week, when rival Sun Microsystems was launching its new x64 servers, the company hired a pilot to fly a sky banner over Dell headquarters touting Sun's new, competitive product.

Sun even tried to take out audacious advertisements proclaiming, among other things, "Benchmark Studies Prove That Dell Sucks…About 63 percent More Energy Than The New Industry Standard Sun x64 Server."

The ads were rejected by media organizations, but the publicity they created generated a good amount of attention nonetheless.

In response to all the publicity, Dell 1) announced a new customer service center in Oklahoma and 2) announced that Overstock.com is using Dell servers.

Quietly, Dell also continues to give away $200-plus flat-panel monitors for free, ship sub-$400 notebooks and offer printing products at bargain-basement prices.

Is it possible that all the price-slashing is affecting Dell's bottom line? Well, as a matter of fact yes -- according to Dell itself. In its most recent quarterly report, filed with the SEC, the company wrote of its last, disappointing quarter:

"…(R)evenue growth was moderated by weaker performance in our U.S. federal government and U.S. Consumer businesses, as well as, declines in average selling prices during the second quarter and first six months of fiscal 2006."

And who do you think has been driving declines in average selling prices? Maybe the company giving away free LCDs and cheap printers?

Resellers, integrators and solution providers - who have competed with Dell for years - learned a long time ago that trying to win primarily on low pricing isn't really a winning strategy.

But old habits can die hard and, it appears, Dell is sticking with its habit of slashing prices, and keeping them low, to fight competitors. Rivals are doing the opposite: working to move up the value chain. In China, for example, Toshiba is answering Dell's unveiling of new, low-cost notebooks by letting Dell have that segment. Toshiba is focusing on higher-end systems with bigger margins.

Marketing expert Steve Rubel, in writing about Dell's recent disaster in ignoring a swarm of blog complaints about its products and services, suggested the company stop acting so button-down and unfunny:

Don't take yourself so seriously. Come down from the Austin hilltops and show us that you can take your lumps and laugh this off.

Rubel also suggested Dell host a scavenger hunt for bloggers on its web site. The winner, he said, could get 50 percent off a new Dell PC. That might solve the company's PR problem, but it would highlight its pricing problem.

After years of being the low-cost provider, the market may finally be starting to treat Dell like the low-cost provider.

Once that war starts, it's not an easy one to win.