MICHAEL DELL INTERVIEW
Few people can lay claim to have reinvented an industry
and created a new business model. Even fewer can claim
to have done by the time they were in the late twenties.
Michael Dell can.
The chairman and CEO of Dell Computers speaks to Jorge
Nascimento Rodrigues and João Ramos
The idea of assembling and selling computers directly
to consumers came to you at university. How did this
MICHAEL DELL - Actually, the idea came
before that, before I went to college. After I got my
first computer, when I was in high school, I took it
apart to see how it worked. I also read a lot of computer
trade magazines and learned what all the components
were. The systems were much less complicated then. I
quickly realized that the total price of all of the
components of the systems was much less than what the
stores were charging people. The distribution channel
was adding a lot of unnecessary cost to customers without
providing any value. So, I started enhancing my own
computers and then started building them for other people.
I think one of my first clients was the father of a
high school friend of mine. His dad had his own business
and I built some systems for him.
While many people were suspicious about the emergent
Web, you decided to use this new platform to challenge
the computer business.
Dell - I wouldn't say that we used the Internet
to challenge the computer business as much as we used
it to better serve our customers. We setup an FTP site
in about 1994 to get support information to customers
who wanted it. That site evolved, and a couple years
later we started selling systems over Dell.com. We were
actually the first company in our industry to have a
Web site. The Internet is a very natural extension of
our direct business model. It became one of our most
important connections with customers very quickly. We
do about half of our total business through the Internet.
And beyond our Internet-based sales, we've put the Internet
to work in nearly every aspect of our business - from
support to many of our internal operations, like human
resources functions to the management of our supply
chain. The vast majority of our suppliers are online
with Dell and we constantly share vital business information
with them through the Internet. That's the key to putting
the Internet to work for a business. It's not just a
website. Businesses that want to enjoy the benefits
of the Internet must integrate it very deeply and very
broadly within their processes and relationships.
Do you think HP and Compaq will merge? What will be
the impact on Dell's market share?
Dell - Well it certainly looks like they're
determined to make it happen. Who knows if it will actually
take place? It's interesting that the market hasn't
given the deal a big vote of confidence. The combined
value of the two companies has decreased by over $25
billion since the announcement. History proves that
these types of big mergers are very difficult to make
a success. Over the years, there have been many attempts:
Sperry and Burroughs; HP and Apollo; AT&T and NCR;
Silicon Graphics and Cray; Compaq and Tandem; Compaq
and Digital.... None of these mergers created an industry
leader. They just created many challenges for the companies
involved and great opportunities for their competitors.
I think that's the case here. This merger will create
a lot of confusion for customers with all of these people
and products and brands going away and new cultures
and systems getting defined. In the meantime, Dell will
be serving customers as we always have. It remains to
be seen what this deal will do for Dell's market share,
but Dell has been increasing market share for a long
time, and I don't think that this will reverse that
trend. In fact, if you look at the trajectories of Compaq
and HP's combined market decline and our growth, it's
pretty likely that Dell would have more market share
than the combined company by the time this merger would
What will be the likely impact of the present economic
downturn and bear stock market, plus the terrorist attacks
in the US, on the computer business?
Dell - We're definitely going through a difficult period
right now. Certainly not just in IT spending. This is
a time when we all have to stay focused on getting back
to business in the wake of September 11th and we all
have to do our part in making sure that we all get back
on solid ground. The technology industry has been facing
a "triple whammy" of sorts - the decrease
in demand after the huge spend in anticipation of Y2K,
the dot-com bust, and the general economic slowdown.
And now the terrorist attacks and military response
create more uncertainty. But I would characterize this
as a period of caution in terms of IT spending. We are
constantly talking to our customers and many CIOs tell
us that they have been postponing some of their spending,
not canceling it. You can't cancel productivity; eventually
you have to make those investments in the ongoing success
of your business. We've seen difficult times before.
After the recession in the US in the early '90's, IT
spending rebounded sharply. Same thing after the European
recession of '93 and after the Asian financial crisis
in the late '90's. I anticipate we're going to see the
same kind of a rebound here.
Do you think the new economy is dead?
Dell - If you mean the economy based on the global
flow of information, virtually-integrated relationships,
and real-time efficiencies - all of the great benefits
of the Internet - then no. It's certainly not dead.
But if you mean businesses created without regard for
fundamentals like profits and cash flow, then yes. It's
How do you see the future of the WINTEL platform in
the PC segment? Do you think that free software platforms,
such as Linux, could surpass the present dominant platform?
Dell - I see the Wintel platform continuing
to dominate the computing market for years to come.
But more importantly, I see industry and open standards,
like Wintel and Linux, continuing to replace proprietary
Unix architectures in increasingly powerful and complex
systems. Superior price-for-performance in computing
can only be achieved through industry-standard technologies.
As standards like Intel-based architectures and Windows-based
operating systems proliferate, products commoditize.
And as products commoditize, prices come down and volume
increases. Proprietary, one-vendor, architectures are
plagued with high costs, high gross margins, and high
prices, that over time will come under considerable
pressure. In non-proprietary architectures, innovation
is high and costs are low. The history of our industry
is full of examples where standards-based companies
like Dell have surpassed proprietary firms. DEC, Wang,
Burroughs and Amdahl - to name a few. Standards-based
systems win because they are easier to integrate into
IT infrastructure, have tremendous cost advantages,
and provide faster improvements in price-for-performance.
Within the IT market as a whole, proprietary architectures
are shrinking as a percentage of total units and revenues.
We've seen this in dramatic fashion in the desktop,
notebook, and workstation markets, and now we're seeing
it in the server and storage markets. In March of this
year (2001), a company named Netcraft conducted a machine-to-machine
survey of web servers worldwide. Seven hundred thousand
separate servers responded and identified their O/S
and architecture. The results indicate that a vast majority
of the Internet runs on standards - mostly Wintel -
not on expensive proprietary architectures.
Do you intend to continue to focus Dell on its historical
core business or do you plan to diversify into consulting
or storage services for example?
Dell - Dell already has a quite strong services
business. We do $3 billion per year in services, which
represents about 10% of our total business. And it's
growing at 34%, which is our fastest growing revenue
line. We do everything from simple break-fix to complex
installations through our Dell Technology Consulting
Team. And by partnering with the top service organizations
like CSC, Unisys, Cap Gemini Ernst & Young, Accenture,
KPMG, and EDS, we're able to provide the full range
of services with the largest team in the business and
with the greatest value to customers. And I expect that
this part of our business will continue to thrive.
Any plans to enter the PDAs market?
Dell - We are always evaluating opportunities,
but right now that's not an attractive area for us.
It's a matter of priorities. Dell focuses on large and
profitable markets and the PDA market qualifies for
Jorge Nascimento Rodrigues is
the editor of www.janelanaweb.com and http://gurusonline.tv
João Ramos is editor of www.canalebiz.com.
Interview October 10, 2001
© Jorge Nascimento Rodrigues,