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Dell Drops WebPC

Written By: R. Krause
Published On: August 1 2000

Dell Drops WebPC
R. Krause - August 1, 2000

Event Summary

Dell Computer Corporation has decided to stop selling the WebPC, Dell's attempt to break into the nascent "Internet appliance" consumer market. Dell blamed disappointing sales and component shortages for its decision.

Originally announced in November, 1999, with a starting price of $999, the WebPC went through a round of price cutting in March, 2000, dropping the base price to $799 - still higher than the $599 price from competitors.

Dell continues to be a strong player in the business computing market.

Market Impact

Dell has had numerous successes in recent years (witness their penetration of the PC and Intel server markets), but this shows missteps can happen to anyone. Part of the problem appears to have been the relatively high price tag, an issue we first mentioned in December (see article, "Dell Jumps Into Internet PC Arena") Dell's WebPC was originally priced $999, dropped to $799 in the spring, but was still considered too high. The market "sweet spot" for a baseline consumer appliance appears to be around $500-$600 for an appliance with disk, and $200-$300 for a diskless appliance. (Prices vary depending on how much processor, RAM, etc.)

Dell's leaving will have two contradictory effects on the Internet appliance market. The effect on consumers is, paradoxically, no effect - there are enough suppliers out there now that customers will be able to find an appliance if they really need/want one. Although Dell is certainly a popular brand, it's not clear that brand loyalty carries over to the relatively new appliance market.

We expect the effect on manufacturers will be greater: many of the remaining manufacturers will now have a slightly larger market "pie" to divide. We expect Gateway and Larry Ellison's New Internet Computer Company to gain from this announcement. (Compaq's iPAQ is a more business-focused machine, so not really a competitor to the WebPC.)

At the same time, given the herd mentality of market, we expect that at least a couple of manufacturers will say "If Dell is getting out of the market, then maybe we should too! After all, look at how successful Dell is." Perhaps Dell will send these companies a bill for market research services.

User Recommendations

Business users will have moderate interest in this announcement, from the aspect of a longer-term avenue being closed. (If Dell were successful in the consumer space, they reasonably could be expected to move into the corporate space, etc. etc.) Clearly, they can no longer include the WebPC on the short list of appliances.

Corporate users should investigate offerings from Compaq (iPAQ), HP (e-Vectra) and IBM (NetVista) if they decide they really really need appliances. If the need is not immediate, corporate users (especially "power users" - those requiring extensive desktop power for things like productivity suites) will be better served sticking with traditional PCs.

 
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