If Michael Dell was wondering what would come next, now he knows. This time, it's a lawsuit brought against Dell by New York Attorney General, Andrew Cuomo, who's claiming the vendor engaged in false advertising and deceptive business practices as a means of boosting profits on PC sales.
The company is denying the charges and insisting it will vigorously defend itself in court. The problem, of course, is that in the court of public opinion, these charges have further validated the guilty verdict that countless Dell users have already handed down.
Yet the situation could be worse. Envision a scenario in which the state of New York refused to do business with Dell, officially blacklisting the company. Can you imagine the damage it would do to Dell's reputation?
Michael Dell certainly can. He faced a similar scenario about 10 years ago, when another government entity accused Dell of fraudulent business practices. In that case, the entity was an operation called Scriven Trading, a commercial arm of the Beijing municipal government now known as Beijing Holdings. The Chinese agreed to pay Dell $US2.5 million for a batch of 4000 PCs that were among the last 486- based machines it manufactured, and that Dell was very eager to dispose of.
Within a few months, the Chinese began to experience extraordinarily high failure rates due to a problem that was eventually traced to defective Quantum hard drives. Top Scriven officials - and, by extension, top Beijing city government officials - felt like they'd been had, and threatened to pull the plug.
The Beijing officials complained directly to Michael Dell and wanted his intervention, but he left the matter in the hands of Hong Kong-based Asia-Pacific manager, Phil Kelly. With some impressive diplomatic skills I witnessed from very close range as a journalist covering the story, Kelly resolved the matter to Beijing's satisfaction.
Kelly went on to build a lucrative business for Dell in China by championing the construction of a factory in Xiamen and adapting Dell's build-to-order model to the local market. Two respected China experts, Tom Manning and Paul DiPaola, documented Kelly's work in the Financial Times.
Their conclusion was Kelly's success was rooted in a strategy that enabled him to adapt the direct business model to the reality of a different and changing marketplace, and to adjust processes accordingly.
Fast-forward to this month and, after about a year of flirting with the reseller channel, Dell has spoken of aggressively incorporating indirect sales into its business model. Why it took Dell so long to adapt the model to a market reality that enabled HP to dethrone Dell from the top spot is unclear, but the move is an encouraging one.