Dell Hosts Marketplace
By Laura Lorek, Inter@ctive Week
October 9, 2000
As Dell Computer's shares hover around a 52-week low, the personal computer maker is branching out into new areas. Later this month, the Round Rock, Texas, company will launch its own business-to-business marketplace, where it hopes to bring together its estimated 2 million business customers to buy and sell office and general business products.
The marketplace (www.dellmarketplace.com) could offer Dell a new avenue to boost its revenue and its stock price, as it will take a small cut of each transaction. But it faces stiff competition, not only from well-established players such as W.W. Grainger in the small and midsized office products and maintenance supplies space, but also from a wide range of independent vertical and horizontal marketplaces.
Dell is betting it will be able to leverage its loyal customer base and build on the technological strengths that have made it the top computer vendor online. Ultimately, founder Michael Dell wants to make the exchange a portal for the company's customers to do business on the Web. "One of the things we are trying to do is make it easy for any customer to put themselves into a marketplace," Michael Dell says. "There will be a huge variety of marketplaces out there."
As gatekeeper of the exchange, Dell will resolve disputes between buyers and sellers. For now, participation is limited to Dell customers, and three suppliers — 3M, Motorola and Pitney Bowes — have announced their involvement.
The big appeal, the sellers say, is gaining access to Dell's customer base.
"We believe the Dell Marketplace can play a critical role as distribution through e-commerce channels continues to evolve," says Paul Mullaney, e-business manager at 3M.
A pioneer in selling computers directly to customers, Dell sells $50 million worth of desktops, servers, laptops, printers and other equipment per day on its Web site. Company officials declined to discuss its revenue projections for the marketplace.
Dell is offering a package for about $50,000 that will bring companies online to sell their products or services through the exchange, Michael Dell said during Dell's DirectConnect conference for 2,000 of its customers in Austin, Texas, last month. For buyers, especially those not big enough to have one-on-one relationships with suppliers, the site offers one-stop shopping.
The estimates of how many marketplaces exist today range from 800 to 1,500, in a variety of industries from construction supplies and chemicals to automotive and airline exchanges. Forrester Research predicts online business trade will reach $2.7 trillion in 2004, of which 53 percent will flow through e-marketplaces. Meanwhile, as Dell helps its customers set up their businesses online, it will be promoting its servers and storage products to those companies. Dell also hopes to provide related services.
By thoughtfully developing their Internet capabilities in areas most affecting operational performance, Michael Dell says, businesses can significantly boost their financial performance. He cites new research from the University of Texas-Austin's Center for Research in Electronic Commerce.
The study, sponsored by Dell, shows a strong relationship between financial performance and electronic business technology drivers such as systems integration, customer orientation and supplier-related processes. While most businesses have Web sites, Michael Dell says, the study found companies had just begun to scratch the surface of gains they can achieve.
"As a whole, I'd give businesses a C-minus on Internet integration, because only the easy steps have been taken," Michael Dell says.
Dell's marketplace announcement disappoints analysts Rich Karpinski and Tim Clark at Jupiter Communications' Net Market Makers division. "Frankly, we were hoping for a Dell answer to e2Open or eHitex, both coalition Net markets for computer components," Clark and Karpinski wrote in a weekly report. "As everyone knows, Dell got where it is today by creating the tightest Web-based supply chain this side of Wal-Mart [Stores]. Guess they're content to continue to ride their own supply chain horse, which Dell argues is a competitive advantage it won't share with rivals."
Karpinski and Clark say Dell's marketplace looks like it will be little more than Dell Gigabuys — the PC maker's much-hyped Web store that sells non-Dell peripherals. "It's hard to fault Dell for trying to provide an innovative new service for its customers, but let's also note that Dell Marketplace represents a Dell flip-flop," they say. "This spring, Dell execs were trashing the Net market concept in favor of its direct model, but now it's a marketplace convert."
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