DELL's answer to idot.com... start-Up Hopes PC Buyers Want To Connect The IDot
Date: 9/14/98
Author: Nick Turner
Do what Dell Computer Corp. does best and do it better. That's what start-up PC maker IDot.com
Inc. in Austin, Texas, is attempting in Dell's own backyard.
Dell, based in the Austin suburb of Round Rock, epitomizes the idea of selling directly to
customers. IDot looks to cut out the middleman even more. Dell's phone agents field many of its
orders; IDot handles everything online.
IDot officials claim their operation is so efficient that IDot can offer lower prices than Dell. And it
can make money, even with razor-thin margins, they add.
''Dell's done a very good job,'' said Mark Marlow, IDot co-founder and vice president of product
marketing. ''But we feel that to be successful in the long term, you have to cut down on the
number of times that a person physically interacts with a customer.''
At IDot, there are 23 full-time employees occupying 25,000 square feet of space. Orders for IDot
computers literally go directly to the factory floor.
As soon as customers punch in their orders at IDot's Web site and a credit card is approved,
company servers then transmit that order straight to the factory. No human shepherds the order
through. The PC typically is shipped to the customer within 48 hours, IDot officials say.
Can this model work? Dell's sales over the Internet have blossomed, reaching $6 million a day in
July, two years after its Web sales began. Dell wants to sell half of its computers via the Internet by
the end of '00.
But Dell, with $13.7 billion in revenue, still says human contact is necessary. Many customers are
large corporations, which Dell meets face-to-face, company officials say.
''The direct model is not just about selling,'' said Libba Letton, a Dell spokeswoman. ''It's about
developing and maintaining relationships with customers.''
IDot insists that buyers can easily reach its employees over the phone. Most of its customers,
though, would rather deal through the Internet. The company targets tech-savvy buyers who
don't need hand holding.
''We're looking for people who are buying their second, third or fourth computer,'' said Neil
Bremner, IDot co-founder and executive vice president.
Some issues, such as technical support, still must be handled over the phone. IDot outsources
those services to another company.
The idea behind IDot was spawned over dinner last November at an Applebee's restaurant near
Dell's campus. Bremner and Marlow were introduced by entrepreneur C.P. Lee, who now serves as
the company's president.
''We thought there was a huge opportunity out there on the Internet,'' said Bremner. ''It was a
market that wasn't being served well by the traditional companies.''
Backed by $3.5 million in venture money, IDot was formed in January and started selling
computers in April. Looking to build up its infrastructure, the company seeks another $20 million
in funding.
Marlow won't discuss current company sales figures. But he hopes to see the revenue growth of
his former employer, the now-defunct Power Computing Corp. Power, which made clones of
Apple Computer Inc.'s Macintosh, sold 100,000 units in its first year of operation.
''We went from zero to $400 million in annual revenue in about three years' time,'' Marlow said.
''We're hoping to come close to replicating that feat at IDot.''
IDot claims to offer better prices than Dell. Comparable PCs are anywhere from 3% to 15%
cheaper, Marlow says.
The company's prices can indeed be better than Dell's - if you're buying one or two PCs, says Rob
Enderle, analyst at Giga Information Group in Santa Clara, Calif. But Dell's prices drop on volume
purchases, he says.
IDot says it isn't going after large corporate customers. The company hopes to attract college
students, video-game players and small businesses. And IDot sells low-end PCs, a market
segment that Dell won't touch. Some of IDot's models sell for less than $700.
IDot's business model will allow it to turn a profit even if its gross margins drop to single digits.
The company won't divulge current margins, but officials say they are lower than the roughly
22% earned by Dell.
IDot says its Austin location allows it to get good deals on components. Several component
makers are situated nearby to serve Dell.
Still, getting components at low costs is unusual for a star |
