itmWEB TechWeekly

May 22, 1997

Michael Dell's Corporate Strategy

A summary of recent strategic overview meetings held a Dell Computer's Austin Headquarters.

Recently I had the opportunity to join a group of IT executives from about thirty medium sized companies who were invited to participate in two days of briefings at Dell Computer Corporation. All of us were required to sign non-disclosure agreements prior to attending these meetings. Consequentially, I can not report on any specifics of the presentations - especially the future marketing and product plans. However, I can discuss some of the general information which is already public. The highlight of these briefings for me was when I found myself seated at lunch between Michael Dell and John Kinnaird (VP of the Preferred Accounts Division) - but more on that later.

Clearly Dell computer has come a long way from its beginnings at Michael Dell's dormitory room at the University of Texas. To get a better understanding Dell's recent accomplishments, take a moment to read the following two articles:

Fortune: The Resurrection of Michael Dell

Business Week: Michael Dell: Whirlwind on the Web

Now, back to the Dell meetings:

First, John Kinnaird highlighted Dell's commitment to being a full lifecycle vendor. He clearly expressed Dell's "passion" for excellence in the planning, deployment, and maintenance lifecycles of the technology procurement process. In order to support this, he explained that Dell has expanded their services to include asset financing and leasing, software sales (through DELLWare), factory software loading of customer software (through DELLPlus), and asset disposal of Dell products. He pointed out that Dell continues to strengthen their "direct sales" business model through the aggressive use of the Internet. Of course, he also focused on Dell's efforts in keeping leading edge desktop, laptop, and server technology flowing from their three major factories. John is a very articulate and dynamic presenter, and I was impressed with his overview.

Bill Morris, from Dell On-line, gave us a brief overview of the Dell Internet site. Dell has built a sophisticated web site for both marketing and customer support. Recently, Dell has made over 35,000 pages of technical support documentation available over the Internet. This is the same documentation that is used by Dell's help desk representatives. In addition, Dell is creating custom web pages for key customers which reflect the specific product and support requirements of the particular company.

Ralph Mango, from Dell Leasing, made an excellent presentation regarding the benefits of leasing computer assets rather than than buying them and depreciating them over a five year period. Did you know that in 1998 over 94,000,000 personal computers will be retired? In addition, The Gartner Group has stated that a Pentium computer will have no value on the market three years from today. This growing compression of the life cycle for these types of assets is creating new financing issues for accounting departments at many companies. A comparison of the cost of a purchased machine, depreciated over a three year period, to the cost of a machine on a three year lease, shows that the difference can be as great as 10% in favor of the lease.

Jay Bell, Senior Dell Fellow (translation: Head Guru), covered some of the interesting issues Dell is facing in designing the next generation of personal computers. Unfortunately, none of his presentation can be disclosed. About all I can do is cover a few non-sensitive, public knowledge tidbits. Dell is currently focused on the issues surrounding the new system and peripheral buses (as are all the vendors). Dell is obviously studying designs for future serial buses (as is everyone). The new 1394 standard "Firewire" serial SCSI is a development to watch from all the vendors. If you are really interested, you can find many of the next generation PC requirement details in the "PC 97" standards document from Microsoft (required reading for compliance by hardware vendors).

Jay also showed us some interesting charts which pointed out that much of the performance increases to be gained from current technology come from the addition of more memory to the computer (a Pentium 200 shows a 63% performance increase with 64 meg of memory compared to 16 meg). Given the price of memory today, taking advantage of this is to good to pass up.

Of course the Dell product line representatives covered each of the major Dell product strategies for the next two years in detail. All of this was confidential, but you can guess where they are going by looking at Intel's marketing roll-out plans. Without disclosing any sensitive information, I can tell you that a big push is coming in the server area. Watch for Dell to continue to gobble up market share.

I had the opportunity to tour the new Dell server factory. The concept Dell is using for production of these machines is not an assembly line approach. Instead, they are using manufacturing "cells" to individually build each new server to specific customer requirements. They can also load specialized, customer specific software at the end of the manufacturing process. This allows the server to be shipped to a final destination with software loaded and configured to MIS department specifications. This is a part of the DELLPlus service.

Now, for the lunch:

Michael joined our group at the Renaissance Hotel in Austin. This was mostly MIS executives from all over the United States and some of Dell's key regional sales representatives. I sat with Michael, John, and the representatives from McAfee (the antivirus software company). Since I am a part of a larger international company, with offices in many countries, my concerns during our lunch discussion centered around the challenges of having international employees working in foreign offices, and the MIS issues this situation can pose. Michael and John gave us some background on Dell's continued international expansion plans, and examples of how they are currently serving multi-country operations.

After lunch, Michael gave an informal "stand-up" talk about Dell's future vision, and then we moved to a period of question and answer. Dell had just announced a huge earnings increase the day before, and their stock had jumped up to 108! As you can imagine, the lunch was very upbeat.

My final impressions: Dell is on a roll, their "direct sales" model is proving to be incredibly successful, the Internet will be a very important tool for Dell marketing and support in the future, and the Dell Power Edge server line is now a serious contender.