Emerging Technology Conference Special Report: Dell Looks Beyond PCs

The king of online Computer sales is eyeing new markets in home entertainment.

By Erik Sherman

September 25, 2003

Hinting about plans for consumer electronics and further expansion into enterprise hardware and services, Dell chairman and CEO Michael Dell emphasized that innovation was as much about business processes and strategies as it was technology during his keynote address Wednesday at the Emerging Technologies Conference at MIT.

"Inventing things is [often] confused with innovation," said Dell in response to a question from Technology Review's editor in chief Robert Buderi. "Our model of how things benefit customers is [the center of] how we do everything in the company." Those innovations allow Dell's company to do such things as take a PC order and within 90 minutes have the necessary materials delivered by its suppliers. Dell sells between 120,000 and 140,000 PCs a day.

"Is that all those college students in the commercials?" Buderi joked. Dell thought about it for a second and responded in kind, "Yeah, like that."

Although the company is most closely associated with selling PCs over the phone and the Internet, that has not been a high-growth business recently; overall, PC sales have flattened, according to analysts. And so Dell has been looking at new markets. Dell noted that enterprise servers and storage are the major growth areas the company has been exploring and that its corporate IT services business has grown two to three times faster than the products operation.

He also mentioned announcements that will come later this week about Dell's efforts in the "digital home" market. "What's the difference between a monitor and a television?" he asked. "The difference is a tuner, which is a small piece of electronics. We're the largest provider of LCD monitors in the world by a wide margin."

That ambition alone would cause concern for such companies as Sony and Panasonic; Dell has the operating efficiencies, reach, and marketing savvy to become a major player in those fields. But Dell also spoke of making a PC the center of the consumer entertainment experience, echoing a theme that Bill Gates of Microsoft has been stressing for some years. "The PC is not just a computing device," Dell said. "It's entertainment. It's music. It's videos. It's television.  When you look at the other technologies in the home, they are proprietary. With an IP-based network, you could have everything connected. That's a much more compelling vision of what we have today."

Dell said that much of what is currently called innovation is actually "a lock-in" created for the benefit of the vendors, rather than customers. Proprietary technologies allow vendors to become the single source for products. He cited early digital cameras and the number of incompatible interfaces that existed between the devices and PCs.

Dell admitted that his company looks not "to reinvent things we can get from our partners, but to leverage [their innovation]." Focusing on nimbler and faster business models and processes has put the Round Rock, TX, company at the lead of the PC industry. With last fiscal year's sales topping $35 billion and gross profit margins of 18.5 percent, according to the financial Web site Hoovers.com, Dell has gone beyond the "800 pound gorilla" to become a behemoth. Such rivals as Hewlett-Packard and IBM have larger annual revenues, but over a far broader base of business.

Still, he said, the company puts considerable resources-a half billion dollars-into its annual R&D budget. "We're tied into all the basic research and material research in all the ingredient technologies that are critical to the future of our industry," he said. "The magic is from the intersection" of those technologies.

One of the newer areas it is exploring is grid computing, in which hundreds or thousands of PCs are tied together to solve problems or achieve tasks that formerly would have required mainframes. Noting that a customer was using 4,000 servers in clusters to perform seismic analysis, Dell said, "They think it costs them about one tenth as much this way as it cost them the old fashion way." He sees this area as being an important one for the company in the future, particularly for computationally intensive applications in biotechnology, financial analysis, and automobile development.

Immediately after making this point, the lights went out in MIT's Kresge Auditorium, where hundreds of attendees listened. "Guess somebody didn't like that," he said.

Another important element of Dell's future, he said, will be partnerships with content providers in such areas as music and possibly videos-and protecting the material with digital rights systems to draw the vendors. "If they don't bring their toys, then you can't really have a good party," he said. That could indicate an intent to start competing with Apple Computer, which has seen a strong consumer response to its new music downloading service.

At the end of the discussion, Buderi asked Dell if he had any advice for the dozens of young people named by Technology Review as major innovators. He answered, "Mostly it's about being curious and learning and iterative-and if you want to have a massive success, you're not going to get there by having something just a little bit better than your competitors."

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