Even in this era of business prodigies, his youthful success is virtually unrivaled. Michael Dell recently turned 36 years old, and already he’s considered a sage on matters of business and technology. Dell Computer, which he founded at age 19, was the best-performing American stock of the 1990s. Long the front-runner in U.S. personal computing sales, the company took the global lead from Compaq in the first quarter of 2001-and with $32 billion in revenues last year, it’s bigger than Microsoft.
So how do you build the world’s largest PC company? Dell points to such old-fashioned strategies as giving people what they want and for a lower price; for that reason, he admires the work of Henry Ford and Wal-Mart’s Sam Walton. But he also revolutionized the selling of personal computers, using a direct-business model whose fundamental tenets include taking custom orders directly from customers, thereby reducing inventory and streamlining distribution. That model rocked the world of competitors like IBM, Compaq Computer and Apple Computer and changed forever the economics of the business.
Despite such accomplishments, Dell’s chairman and CEO remains focused on the next big thing. Recently, with PC sales growth slowing, he moved into storage and Internet servers-taking on the likes of Hewlett-Packard, Sun Microsystems, EMC and Cisco Systems. Technology Review editor at large Robert Buderi met Dell at his Austin, TX, headquarters and asked about the company’s brilliant legacy of growth, the “pragmatic” R&D intended to keep the flame burning, the future of computing and his hopes for the now slumping economy that this year has seen his firm endure its first layoffs-between 4,700 and 5,700 jobs, more than 10 percent of its work force.
TR: People get damned and praised for the wrong reasons sometimes. What do you feel you’ve done as an innovator-and what’s been misunderstood?
Dell: People look at Dell and they see the customer-facing aspects of the direct-business model, the one-to-one relation-ships. What is not really understood is that behind these relationships lies the entire value chain: invention, development, design, manufacturing, logistics, service, delivery, sales. The value created for our customers is a function of integrating all those things.
If you go back to the dot-com craze of a year or two ago, a lot of people were saying, “Oh, we know how we’re going to succeed-we’ll create a Web site just like dell.com, and we’ll be the Dell of the whatever industry.” The problem with that is that Dell’s business is not a Web site. While we do half our business on the Web, it’s just the front end to this business system. Dell has filed well over a thousand patents, we have four or five thousand engineers, and we spend $700 million in R&D. And we’re always asking ourselves, “How can we optimize the set of conditions we’re faced with-whether it’s supply chain, customer relationships, time, speed or cost?”
Remember that the computer industry when Dell entered it had gross margins of 40 percent plus. On top of that, you had dealers with margins of 20 to 30 percent. So the end user was paying a pretty incredible premium over the cost of goods for the product. And then Dell came along, and I fully acknowledge if it hadn’t been Dell it would have been somebody else, and the industry gross margins have gone down quite dramatically. Which means that parts are far more affordable, which means that the industry has grown a whole lot faster than it ever could have, which means that people have greater and faster access to technology. And I believe fundamentally the market grew faster because we forced a condition to exist-and businesses that didn’t add value were forced to move on.