Web Informant #304, 6 November 2002:

 Is Dell the new monopolist?




With the conclusion of the Microsoft trial last week, we need to find another potential monopolist to keep all those Justice Department lawyers fully engaged. I contend that the most likely poster child is Dell Computer. Not that I wish the company any ill will (and we really don't need to be looking for things for lawyers to do, even though some of my best friends are lawyers). But certainly Dell has the potential to be the best-positioned company in this decade, and is growing stronger every day.


Just as Microsoft set the terms for the desktop in the 1990s, Dell is doing for the channel in this decade. Want printer ink prices to plummet? Just give everyone at Dell a few months' time selling Lexmark printers. Want white box makers to be squeezed out of whatever meager profits they currently manage? Dell is making their own white box line, and signing up VARs left and right. Are you reselling some network gear that is competing with Dell, such as network switches from Cisco or HP or 3Com? Take a look at how the price per port on Dell's PowerConnect line is around $50 for gigabit ports. That is a heck of lot less than the other guys' switches, and you can bet that the profits are getting squeezed out of their stuff.


I think Dell has set the tone for 2002, and will continue to do so in the coming years. And they are like a Predator guided aircraft, homing in on excess profits all over the computer industry landscape.  


I am not one of those people that want to add more legislation to our embattled industry, far from it. And I am not saying that we need another 5+ year protracted trial just to prove that Microsoft should have unbundled Internet Explorer from Windows 95. (I think just in the spirit of the DOJ settlement, Microsoft should re-issue a special version of that aging operating system without IE, just for all of you that are still running the thing. But I digress.) Nor am I saying that I want the feds to intervene with Dell's business operations. But it does seem that those Texans are getting their way more and more. And perhaps the rest of us need to learn a few lessons from those guys, in terms of how to become more channel-savvy.


Dell has become the current powerhouse because they have great products, understand the market and how to manage their inventory, can dictate terms to their suppliers and partners, can seek out where the growth areas are and can leverage their awesome direct response customers in ways that no one else in our industry can. And they are ubiquitous: just about everyone I know owns at least one Dell computer, and many own several in both home and work. I still have a 200 MHz Dell that keeps on running: sure it is now so slow it is like watching paint dry when it boots up, but it still boots up, some five or seven years (I don't even know how old it is, it has been that long) later.


Just like Microsoft, they may not get things right on version 1.0, but eventually they are a force to be reckoned with. Does anyone remember Internet Explorer version 1.0? It was a dog. A bug-infested dog. The same with Dell (not the part about a dog, but the early versions). They work at improving their products, improving their channel, and improving their message, until they have it down solid. Then, look out.


It costs IBM 66 cents a day to keep one of their PCs in inventory. That doesn't seem like much, but it can add up over time. The cost of a PC drops by one percent a week, according to Sam Palmisano, IBM's CEO. That means for every week keeping a PC lying around on a shelf, someone is losing dough. Dell doesn't have this problem: they wait until you place your order before the green light the order.


Look at what they have done in the low-end switch business. They have sold 2 million ports in over slightly more than a year: that is a lot of boxes to push out the door. They enter the high-growth market of high-density, non-chassis type switches that need some gigabit connections, and make those switches cheaper than their competitors. They stay away from the more advanced line of full layer 3 and 4 switches, and leave that 9 (at least for now) to the bigger guys. And to make it easier to administer their gear, they copy the command line syntax from Cisco's IOS, so network managers don't need to learn a new command set once the stuff is up and running. The switches are running Dell's own operating system, so they save some bucks by not paying Cisco for the "real" IOS software. That is pretty smart, if you ask me.


Watch out for Dell. There is a lot to learn from them, and in anticipating their next moves.


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Entire contents copyright 2002 by David Strom, Inc. 

David Strom, dstrom@cmp.com, +1 (516) 562-7151

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