sorry if this has already been posted, picked it up form a friend,,
SAN FRANCISCO (CBS.MW) -- You can learn a lot about a company
by looking at its catalog. What I learned most recently from a Dell
Computer catalog is that Dell is not just a hardware company. It is an
Internet company. And the market should treat it like one.
"I received two Dell catalogs at home, one for me
and a different one for my roommate," commented
my friend Jack, who runs an software start-up in
San Francisco. "And at work I received a third,
featuring small-business products."
The topic of Dell catalogs had come up when Jack
noticed that I, too, had received a catalog in the
mail.
It made me wonder if my catalog was more like
Jack's or Jack's roommate's. It also made me
wonder how many different types of catalogs Dell
ships to potential customers. Finally, it made me
wonder if Dell sends out a variety of catalogs in
order to measure customer interest, or else as a
response to customer interest.
So, as they say, I went straight to the source.
"Those catalogs probably featured different
systems, peripherals, combinations and services,"
explained TR Reid, a Dell spokesperson,
responding to my call. "What you are referring to is fundamental to our
direct business model."
Specifically, Reid continued, "When you own the relationship with the
customer, you can understand very precisely subtle differences between
customer types, and arrange and execute business accordingly. We have
been able to do this for narrower and narrower groups of customers as
we have been getting larger."
In other words, Dell (dell: news, msgs) uses the information it collects
from current customers in order to subdivide its market into ever-narrow
categories.
Then it makes specific recommendations according to category, be it
"K-12 public education" or "laptop-loving consumer."
Personalized marketing
On a more micro-level, customers who register with Dell.com are
presented with customized Web pages reflecting their past purchases, as
well as the interests they "virtually state" by browsing different sections of
the site.
This personalized marketing is strikingly similar to the way that e-tailers
such as Amazon.com and CDNow tailor their front door to individual
customers and suggest products based on past user behavior.
"The Internet is a more efficient way to gather, retain and use information
about our customers," said Reid. "If they have registered with us, we can
push out to our customers notices of relevant specials or upgrades. We
have all of the information of what customers are purchasing what
products at what price," he said. And that information is very valuable.
Not only does its customer database allow Dell to better serve customers'
specific needs, but it also gives Dell a real-time edge in strategic planning.
"If we see that the Pentium III is far more popular than we initially
anticipated, for example," said Reid, "we can make changes in our
ordering of processors from Intel immediately."
And, he continued, "We can feature certain products on the Web site to
direct customers towards certain systems," and thus better control
inventory.
Compare that to the great lengths that Compaq (cpq: news, msgs),
Gateway (gtw: news, msgs), Hewlett-Packard (hwp: news, msgs) and
other PC companies need to go to collect this kind of information from
their intermediaries. To the extent that these companies can obtain any
customer information from CompUSA (cpu: news, msgs) and other
resellers, they will never be able to obtain what Dell obtains: specific
figures on who buys what, when and at what price.
Despite the fact that it is not immediately recognizable in revenue figures,
this type of information is invaluable, and Dell seems quite aware of that.
Just last month, Dell launched Gigabuys.com, an "online superstore" that
sells not only products manufactured by Dell, but also peripherals and
software manufactured by competitors, including Hewlett-Packard,
Compaq and IBM.
Although sales of these peripherals may cut into sales of competing Dell
products, Dell obtains a different type of value through those transactions
that is not reflected in sales revenue: customer information.
Customer info
And, as Yahoo (yhoo: news, msgs) , AOL (aol: news, msgs) and
Amazon.com (amzn: news, msgs) can attest, in the Internet economy,
there is hardly anything more valuable than customer information. After all,
it was databases of far less relevant information that purportedly justified
the exorbitant prices that the three Web giants respectively paid for online
communities Geocities, When.com and Planet All (among others).
Empowered with this information, it should come as no surprise that Dell
sells $14 million of products and services through its Web site every day
-- a figure that represents only one-quarter of total revenues. By the end
of year 2000, Reid said, Dell predicts that one-half of its sales will be
transacted online.
Dell's wise Internet strategy also brings the idiocy of Compaq into sharper
focus. If Compaq leveraged the customer information that it obtains
through its Web properties - - in particular, the popular search engine
AltaVista - - then maybe Compaq could be as successful as Dell.
But Compaq, which has so far all but ignored the unquantifiable potential
of its Web sites, where it could and should be marketing directly to users
based on their search requests, doesn't get the Web. The Web - - and
thus the future - - belongs to Dell.
As I flip through my customized Dell catalog, I have to wonder: what if
Dell traded at rates equaling twenty times projected revenues, aka
standard Internet company rates? As a company with an unbeatable
record of successfully embracing Internet business strategies, Dell's
growth potential more closely resembles that of Amazon.com than that of
Compaq.
And maybe investors should treat it accordingly
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