Monday, January 28, 2013

Microsoft and Dell: A Potential Partnership Based on Supply Chain Symbiosis

The recent rumors of Microsoft’s potential bid to purchase Dell at first may look like a case of a software supplier simply buying out one of their hardware customers.  However, upon further review, this merger could be quite the opposite when the supplier-customer relationship is examined at a deeper supply chain level.  Although Dell has long been a top customer of Microsoft, relying on it to supply its’ Windows Operating system and Office Suite to integrate into its consumer and business PC’s, it actually could serve a more important and even reciprocal role as a prime supplier to Microsoft should the two companies ultimately join forces.  

Contrary to the typically assumed supplier-customer relationship between Dell and Microsoft, there are actually a great deal of products that Dell can supply to Microsoft as it transitions away from a being a basic software company.  Microsoft’s move towards cloud computing (again to battle against the encroachment of Google) has created a massive demand for storage space and servers, and Dell happens to be a major supplier to Microsoft (1).   
While Dell has mostly failed in its forays into the tablet and mobile markets, it can still leverage its deep supply chain and low-cost manufacturing capabilities to supply products under the Microsoft brand.  Most notably, Microsoft recently launched its Surface tablet-laptop hybrid, a rare and new foray into hardware that could definitely leverage Dell’s core competencies to ensure its future success.  This relationship would be similar to that of Tesla and Toyota, who share factories as a means of both decreasing cost, offsetting excess manufacturing capacity (essential for limited-demand newcomer products such as the Tesla Roadster and Microsoft’s Surface) as well as sharing core technologies and manufacturing shared core components (Bullish Signals from GM and Toyota).
Dell XPS Convertable

Microsoft Surface


This will also help influence the overall marketplace for laptop-tablet hybrids, which is a niche that Microsoft is pushing with its Windows 8 Operating System as a way of combating Apple’s increasing sales in both the tablet and ultra-portable laptop market. By fostering an even stronger relationship with Dell, Microsoft will gain even more influence (and profit leverage) among other PC manufacturers as they strive to compete with Dell for Microsoft’s business.  This is similar to the model of the giant furniture manufacturer Ikea, who owns many of its suppliers such as Swedwood, yet positions them against other suppliers on an equal footing in order to better influence the supply chain providers and drive down price (How Ikea Designs Its Sexy Price Tags). 
A Microsoft owned Dell has the potential to become an exclusive and preferred hardware supplier for Microsoft’s products, at a time when Microsoft faces competition from a hardware/software integrated Apple, as well as Google in the Browser, Office Suite, and even Operating System domains.  In fact a merger would be taking a page right out of Google’s handbook (who in turn followed Apple’s integrated hardware/software iPhone supply chain strategy) when Google recently purchased Motorola’s handset business which allowed it to leverage its hardware expertise and already established manufacturing supply chain to produce its own handsets backed by the Android operating system (2).

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