The Chairman Dell communique - MD talks to Internet Week (Interview)
Tim:
For your weekend reading pleasure.
Source:Thomson
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Nov. 06, 1998 (InternetWeek - CMP via COMTEX) -- By most measures, Michael Dell and his eponymous company are at or near the top of the PC industry, perhaps most notably in the e-commerce space. In areas where Dell is not the market leader, such as in corporate servers, it's closing fast.
Chairman and CEO Dell recently met with InternetWeek managing editor David Joachim, news editor Julie Anderson and senior editor Mitch Wagner for a wide-ranging discussion. Excerpts follow.
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InternetWeek: Competitors have derisively called Dell the world's largest white box vendor, implying that other than corporate size, you're not that different from the local guy who assembles computers for small businesses. How do you respond?
Dell: It's somewhere between being wrong and an oversimplification. We have about 2,500 people in our product groups that design and engineer products, and we spend close to $300 million in research and development per year. We also file several hundred patents per year, so there's real technology development going on here.
Perhaps there is a slight tinge of jealous rage in that
characterization.
InternetWeek: Dell is noted for using all standard parts, so what sort of R&D is going on?
Dell: Well, you'd be surprised. I guess it depends on what you mean by standard parts. If you opened up a Compaq server, a Dell server, an HP server or an IBM server, you'll see many of the same components. But there's quite a bit that goes into integration, tuning, testing, packaging, software, diagnostics and overall delivery of a solution.
The ultimate test of value-add is whether you are able to earn a return on your efforts, and I dare say that no company has been able to achieve a return on its R&D expenditure equal to Dell.
InternetWeek: You have put all your eggs into the Intel basket, whereas Compaq has Alpha, IBM has the RS/6000 and HP is holding onto PA-RISC. Is that strategy going to stay intact?
Dell: Yes, because that's where the market is, and that's where it continues to grow. I think that other things that we can do will mostly fall into the category of distraction. Through focus, we're able to execute much more effectively. It is true that we will not cover 100 percent of the market, but we will cover 97.5 percent extremely well.
InternetWeek: How have Dell and its customers been affected by the delays with Windows NT 5.0?
Dell: What we hear from customers today is that they want NT 5.0-ready solutions. People are buying NT 4.0 in massive volumes. If your question is whether the delay of NT 5.0 is responsible for a slowdown in the sales, boy, I sure hope so because I can't wait to see what a speed-up looks like. The simple answer is that we are not seeing any slowdown.
InternetWeek: So there are no large customers that you can think of that are holding up orders in preparation for NT 5.0?
Dell: There are. There are customers who are waiting for NT 5.0. And we, like everybody else, wish it were here sooner. What people are doing is that they are still deploying NT 4.0. The truth is, it's hard to distinguish between the people who are waiting and the people who aren't waiting.
InternetWeek: Are your customers demanding Linux?
Dell: We're seeing it in the hundreds, not in the thousands. We get some interest from customers and we do custom integration for Linux, as well as Solaris and OS/2 and SCO and Banyan. It seems to be a highly vocal group of users but not necessarily very large.
InternetWeek: Dell's e-commerce success is well known. How do you plan to take that to the next level, with respect to managing your customer relationships online?
Dell: We now have more than 8,000 Premier Pages that we have built for customers. These are dedicated Web sites for specific companies that have product support, contact and pricing information.
Our support information and capability continues to improve on the Web, where we've basically taken all the tools we have internally and put them out on the Internet, like one that lets customers easily identify Year 2000 readiness.
InternetWeek: Do you see a saturation point for online sales?
Dell: If there is a saturation point out there it's not obvious to us, and we're certainly not planning that way. We're thinking the saturation point is 100 percent. We have this goal of 50 percent by 2001, but after that, we'll keep going. The curves look quite encouraging, so we're not seeing an obvious place where this can't go beyond.
Sixty-five percent of our online commerce is coming from our Premier Pages now, and if you looked just six or nine months ago, the vast majority was coming from consumers. So we've seen a large uptick in commerce from these large institutional accounts.
InternetWeek: So you have not been able to replicate your overall consumer-to-business mix on the Web?
Dell: No, it's still higher on the consumer side. The consumer has the lowest barrier to entry. For a large company, you've got to get the IT department involved and there is a time lag in there.
Eighty-eight percent of our overall business comes from businesses, but only 65 percent of our e-commerce business comes from businesses. On the other side, 12 percent of our overall revenue comes from consumers but consumers represent 35 percent of online revenue. So the consumer has a much larger penetration rate in e-commerce.
But that's significantly improved from where it was if you went back six or nine months ago, when 90 percent of our online business was consumer. There's been a real shift in the last six or nine months.
InternetWeek: You have said publicly that if customers demand Netscape browsers bundled on their systems, you would provide that. Have you seen demand for that, and do you have any plans to offer Netscape in place of, or along with, Microsoft Internet Explorer?
Dell: We sell Netscape software. We always have and we will continue to do so. However-and this is something I tried unsuccessfully to explain to the Senate subcommittee-our salespeople do not like to sell things that the customer can otherwise get for free. If you're a Dell salesperson, you don't want to sell something that the customer will then realize, two or three weeks later, that he could've gotten free on the Internet.
InternetWeek: But if I'm a corporate customer and I don't have a license for Netscape, you will handle it?
Dell: We will sell it to you.
InternetWeek: And you'll preinstall it?
Dell: Yes. And we will preinstall it for the individual customer. Now, you may wonder, if it's free, why don't you just install it on the computer? The answer is, we are capitalists, and we like to do things for the benefit of the shareholders, not just because it would be nice to do.
And so when Netscape came to us and said, 'Why don't you install Netscape on the computer,' we said, 'Great idea, why don't you pay us some money to do it?' And they weren't willing to pay us what we thought was enough to justify it.
When we put Netscape or anything else on our computer, people click on the icon. And if they have any problems, they'll call us on the phone. That costs us money.
InternetWeek: Is Microsoft paying you to put Internet Explorer on Dell computers?
Dell: They are. The simple answer to your question is yes.
InternetWeek: Now that Apple is showing signs of a turnaround, do you see them on your radar as a competitor?
Dell: Clearly in the home consumer market they're there, in the educational market they're there, in the corporate market they're not there.
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