Dell has experienced phenomenal growth in the corporate PC market, but lagged well behind consumer PC market leaders. Most consumer PCs are still sold through the retail channel, with the market dominated by Compaq (CPQ) and Packard Bell. As of the first quarter of 1997, Dell had three percent market share in the home market, but that has increased significantly over the last two quarters, according to International Data Corporation (IDC).
"The consumer isn't their target market, but they started to pick up a lot of consumer sales through the Web," said Roger Kay, an analyst with IDC. Dell decided that if it refocused the offerings a bit and did some more marketing, it could increase sales even more, Kay said.
One sign of Dell's renewed focus is the offering of DVD drives in its Dimension line of PCs for home and small-business users. A Dimension XPS with 233-MHz Pentium II processor, 32MB of memory, a 4.3GB hard drive, a modem, a DVD drive, and a 15-inch monitor is selling for $2,137.
A high-end XPS with 300-MHz Pentium II processor, 64MB of memory, an 8.4GB hard drive, a modem, a DVD drive, and a 17-inch monitor is selling for $2,893.
One company vulnerable to a push in the consumer market from Dell is Gateway 2000, another direct vendor that has enjoyed the bulk of its success with the consumer and small business market.
"Dell doesn't need to do much to take away sales from Gateway. If it puts in some effort, it can do better," Kay observed. "It is easier to go from corporate market to consumer market than the other way around," Kay said, referring to Gateway's attempt to move into the corporate desktop market.
However, DVD-equipped systems by themselves probably won't ignite sales for Dell, judging by the experience of vendors who sell through retail storefronts. Sales of DVD-equipped systems in the retail channel have been limited so far, said Stephen Baker, an analyst with market research firm PC Data.
"Right now, there is not much of a market for them [DVD drives]. That's partly because there's no compelling reason to have DVD," Baker noted, in reference to the lack of DVD-specific titles apart from movies. "It's also partly the nature of systems with DVD, because they are comparatively more expensive," he said.
IDC's Kay expects that by next year DVD will become a popular option in PCs destined for the corporate market because of their improved data storage capacity.