Rough Type: Nicholas Carr’s Blog: When “direct” becomes a disadvantage
Smart post by Nicholas Carr on Dell’s financial woes. He nails the economics of customer support — while selling direct cuts out the middleman and reduce the hang time of inventory, it doesn’t cut out support costs, indeed, it assumes them rather than passes them on to a distributor or into the channel. Result: Ouch.
“So there, perhaps, is the flaw in the direct sales model, particularly when it’s applied to a commodity product like the PC: You have a cost disadvantage in customer support, which is hidden as long as support represents a fairly small portion of the each product’s overall cost. But as the price of your product falls, due to savings on the production side, support begins to represent an ever larger percentage of its cost. At some point, you cross the line: The direct model’s cost advantage disappears.”