Michael Dell on 'Country Store','Gigabuys',Sub-1000,Competition etc.
Drew:
I think you posted the URL for this article (Q & A with Michael Dell from CNET News) earlier but I only read it just now. I found the following comments by Michael Dell quite revealing and interesting,thought I highlight some of the points MD made again in case anybody missed it.
BTW I sent a 'thank you' note to Michael Kanellos, the journalist who did the interview, for a job well done.
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1)On Research Vs Customer friendly products.
Q: You say in the book that the company has concentrated more on making the products easier to use vs. doing heavy research and development. Why so?
Dell: If you look at most of these companies that are in our competitor base, most of their product strategies, R&D strategies, are heavily engineering driven, in fact a lot of the companies are engineering driven in their focus. And of course that brings on a lot of product innovation, which is not necessarily a bad thing, but if it is not customer focused you can really be misdirected, misguided, and the dollars don't yield much benefit to the users.
We, I think have been quite different in our orientation. We have 25,000 people in our organization, we spend $350 million in our R&D, so there are serious things going on there, but we direct the energy not at duplicating the inventions of other companies, but at unique things that are going to add real value.
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2)On Competitor's attempt to emulate the Dell-model.
Q: A lot of these companies are moving to a direct model, and picking up this customer-centric approach. What will be the differentiator in the future?
Dell: That's the topic of my second book. Just kidding. That will be another 15 years. Um, I don't know. There are a lot of uncertainties in a business like ours. It changes very quickly, lots of new technology…This transition from the indirect to the direct is not as easy as it has been made to seem, and we're seeing some of the signs of that now. For one, you have to deal with the question of doing both at the same time. And our experience in that, which goes back 6 or 7 years ago, was pretty disastrous. [Dell sold through retail stores for a brief period.] The manufacturing guys build a plant that can support both a direct and indirect channel, and it's not very good for either one.
Q: How is that?
Dell: Well you know, our lines are built to the customer's order, and if you build to that, that is very different from building to stock for the dealer's orders. And there are different processes, and if you want to optimize for each one, you have to have a different processes. It'll work, but it's not as efficient, and every decision gets marginalized. 'Is this something we should direct at the customer or the dealer?' And of course your people get very confused: 'What is our real strategy, is it direct or indirect? How should we handle this?' You get this incredible conflict not only among your channel, but also among your people within the company.
These companies that are very good at indirect, can they be great at direct? Can the world's best baseball team beat the best basketball team at basketball. This is a different game. Maybe they will do pretty well, I don't know--there is a lot of uncertainty--but it is not a slam dunk where they can just come over and say, 'OK, now we're direct, we now have a Web site, we're sold on the Internet. We're called whatever direct and now we're just like Dell.'
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3)On Gigabuys.com
Q: You've announced that you will start to sell more third party products through Gigabuys.com. Doesn't that almost put you in the indirect model? In a way, you are a reseller.
Dell: Well, we have been selling these products for a long, long time. We have been a large reseller of HP printers, one of the largest, for a long, long time. I think what you have is an aggregation point where a customer expects to get everything that goes along with the computer. Today our sales of these software, accessory, and peripheral items already significantly exceeds that of many of the dedicated online retailers.
Q: How are you going to do this differently; are you going to manage this yourself?
Dell: Yeah--it is an internal operation. And there is full integration with the Dell shopping cart, so if you are a Dell customer and you want to add a bunch of software peripherals to your order you can jump over to Gigabuys and add those on and keep a common shopping cart.
Q: Are you going to inventory the products?
Dell: No.
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4)On Gateway and the Country Store Concept.
Q: Any thoughts about doing a store, like Gateway?
Dell: We don't have any plans for that. We are not setting up stores. Our consumer business contrasted with Gateway's grew at about 56 percent last quarter. Gateway grew at about 17 percent, so not quite 3.5 times Gateway's growth. It is possible to add sales by opening stores, but the problem is that you also add cost, and cost at a higher level than you would through the existing mechanism that we are using now.
5)On sub 1000 PCs and a tounge-in-cheek comment about Compaq's dubious claim of making the most profit out of sub-1000.
Q: Do you think that you can enter the cheap PC area and still keep within the parameters you have set for the company?
Dell: We can sell a PC at a lower price than our competitors and still make a profit where they couldn't because our cost structure is lower. Which is interesting, because some of our competitors claim that they make more profit on their sub $1,000 PC's then they do on their more expensive ones. How do you do that? That's a form of math I'm not familiar with. I still to this day don't understand how you can make more money on an $800 computer than you can on a $2,000 computer. Someone is going to have to explain that to me, or at least to their shareholders.
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