Too bad to see Barron's put Dell on the cover story. Barron's really sucks. They are always wrong. This is not a good sign for Dell.
interactive.wsj.com
June 21, 1999
Dell-phic Oracle
Michael Dell's vision: more Internet, more access, more
change
By Jay Palmer
Michael Dell didn't set out to become the poster boy for the Internet. Then
again, the 34-year-old billionaire didn't set out to become the man whose
company has enriched its shareholders more than any other in the 1990s. Or
the head of one of the few large corporations actually coining a handsome
profit through online sales.
But all of these accomplishments have placed him among a handful of
corporate leaders with the credentials to make other CEOs listen carefully
when he discusses the future of the 'Net and related technologies. Which is
exactly what he did when Barron's visited him recently at Dell Computer, the
Austin, Texas, direct retailer he founded in a college dorm at a time when the
online world was just a gleam in a few scientists' eyes.
Dell now sells more than $18 million in computer equipment every day over
the Internet, up from just $5 million a year ago. Such sales account for about
30% of the company's total revenues, and the aim is to boost the figure to
50% by the end of 2000. What's more, unlike the activities of most Internet
firms, Dell's online ventures are generating greenbacks, not mere promises;
they accounted for an estimated $160 million or more of net income in the first
quarter.
In fact, no comparably-sized U.S. company -- Dell had $18.3 billion in sales
in its last fiscal year, ended in January -- has been as successful in turning the
Internet into an everyday tool to enhance productivity. The organization has
integrated the Web into every aspect of its business -- design, production,
sales and customer support. Despite a long and diverse global supply chain,
Dell operates with just six days of inventory, a fraction of many competitors'
and a major factor in its prosperity. And the Texas goliath recently opened an
online PC accessories store, Gigabuys.com, which after less than four months
of operation reportedly is already turning a profit, something still eluding the
likes of Amazon.com.
Our interview covered a wealth of subjects, including the battle between
cable-TV firms, phone companies and others to bring high-speed broadband
data communications into the home, the explosion in electronic commerce, as
well as the threat that Linux and Java pose to Microsoft's computer operating
systems.
Quite naturally, no subject is dearer to
Dell's heart than the personal
computer. So it's no surprise that he's
rather contemptuous of suggestions
that the sun is setting on the product
on which he's built his immense
fortune (believed to be about $16
billion).
"Sure, there is an explosion in the
number and range of devices that
people are using to do what is loosely called computing," he argues, pointing
to devices like 3Com's Palm Pilot, "and sure there are more and more
computer-like devices in cars, telephones, kitchen appliances and TVs, all of
which can attach to a network, exchange information and make your life
easier and better in some way. But for all that, the PC remains the preferred
way to get access to information, and it is going to be at the core of the
computing world for years to come." That's not to say that computers won't
evolve. "PCs will continue to get smaller and smaller and more and more
powerful," Dell predicts.
"We will soon be seeing screens that fold up, while things like voice
recognition could eventually mean we could have PCs without a keyboard.
But they'll still be personal computers."
Dell also challenges the increasingly popular view that, not far down the road,
there will be a blurring of PCs and TVs into one device. Says the father of
four pre-teens: "I don't know about you, but in my house the TV and PC are
used for really very different things, and I think they'll stay that way. In some
places, say a college dorm room, computers may be used as TVs. And in
some fringe homes, where not a lot of computing is needed, the television may
fulfill the job. But I don't think we will ever see a mass market using an
Internet TV as a computer replacement. If you look at WebTV today [which
offers internet access via a television], it ... just isn't a great hit."
The computer executive also dismisses the idea that the personal computer of
tomorrow will be an inexpensive, low-IQ "thin box" that works only because
it is connected via the Internet to a mainframe where data is stored and most
of the computing is done.
"It's a pretty dumb, stereotypical view," maintains Dell, "that comes from the
guys at Sun Microsystems and places like that, who are basically trying to
disrupt the tremendous market momentum that exists around the PC industry,
which they rightly see as a threat to their franchise. The first reason they are
wrong is that the market has already told them they are wrong, which is the
best litmus test of all. Sure, there are certain forms of 'server-based'
computing, but there's only a tiny percentage of the market going that way."
And he continues: "There will be some rich applications, which are better
stored on a server, but that's it. Thin boxes just aren't selling. And what is very
interesting about the Internet is that, as people get faster and faster
connections, they want faster, more powerful PCs, not slower ones. And
that's, to coin a phrase, the future, whether you like it or not."
Over the years, Dell Computer has tried to remain a noncombatant in the
software wars. It will load, for example, either of the two leading Web
browsers, Microsoft's Internet Explorer or Netscape's Communicator, into a
machine, depending on the buyer's wishes. Right now, when it comes to
operating systems, there's not much competition, with Microsoft's Windows
98 and NT far and away the leaders. But some predict that Bill Gates & Co.
face a real challenge from Linux, a "freeware" operating system that has
quickly become extremely popular among computer geeks. (If you're brave
and know what you're doing, you can download Linux for free off the
Internet. Alternatively, you can purchase it, plus support, from a middleman.)
"We have seen and are continuing to
see increasing demand for Linux, and
it's quite clear to us that there is a lot
of growth to come," notes Dell. "But,
while our company has bought a stake
in Red Hat Software, the primary
distributor of Linux, I still suspect that
it will not quickly represent a massive
percentage of the market."
Dell is rather cutting when asked
whether Sun Microsystems' programming language, Java, will evolve into a
full-fledged operating system. "If they want to go that way, they have an awful
lot of work to do first. In any case, any new operating system has to go up
against Microsoft and, on any short-term basis, it's pretty hard to take out
their position. On a longer-term basis, things are a bit more open.
"Still, when all is said and done, I don't think Microsoft is a good company; I
think it's a great company, quite literally one of the best companies ever. If I
were a gambling man ... I'd put my bet on Microsoft winning, probably with
Windows NT. In this instance, that's where I think the future lies."
Nothing related to computing excites the Dell Computer leader more than
the coming of broadband communications to the home. As he sees it,
widespread high-speed Internet access -- what cable TV and phone
companies and cellular and satellite outfits are rolling out in many parts of the
nation -- could revolutionize our lives. On the horizon: full-fledged movie
downloads on demand, easier e-commerce and realtime business
conferencing.
Until quite recently, for most consumers, the fastest online access has been
through a standard modem, over an ordinary telephone line. The most
common connections of this type transmit at 28,800 bits per second and, in
truth, more often than not fails to even come close to that snail-like speed.
The various broadband options now becoming available are much swifter.
Once they become common, "it will shift power over to the buyer of goods
and services, whether that is an individual consumer or a corporation," he
predicts "and few businesses will escape the transformation. If they try, they'll
run into trouble. Up to now, people would consider the value of how far they
would have to travel to buy something, whether it be a suit, a car or a piece of
machinery, and the price they pay would reflect the costs of land, buildings,
people and assets in that area. But all that will change when the buyers start
going online in huge numbers. Not only will where you are not matter, but
there will also be a new degree of pricing transparency."
Adds Dell: "Our company is a pretty good example of the way you can focus
and specialize, especially in the manner we use Internet information to connect
with suppliers and customers. This will happen to more and more businesses
in more and more industries over the next few years. The traditional idea that
a company might find it easier and cheaper to do everything itself flies out the
window when the cost of trading information, of discovering who can provide
which parts at what price, becomes so easy."
But, he continues, "In the end, let's be clear about one thing: If you take a
business that is a bad business and put it online, it's still a bad business, it's just
become an online bad business." |
