Dell the conqueror

Which is the most influential PC company in the world?

Some would argue it's Apple Computer, for its software and hardware designs. Others might credit IBM, for bringing PCs to the workplace and for coining many of the key ideas of notebook design.

Personally, I vote for Dell.

Critics, no doubt, are already groaning. Dell doesn't generate much new technology. In fact, the company has only received 867 U.S. patents in nearly two decades--far fewer than many of its competitors get per year. (Dell has 562 more patent applications pending.) Some will point out that the Round Rock, Texas-based manufacturer rarely veers from the standard Microsoft-Intel line. Its "creative" computers--like the WebPC--live short, undistinguished lives.

Nonetheless, no other company has done more to change the landscape of the hardware industry. Compaq Computer, the dominant PC company for most of the '90s, ventured into an ungainly merger with Digital in 1998 to try to ward off Dell. Subsequently, Compaq got bought by Hewlett-Packard.

Now, the postmerger Hewlett-Packard seems to be listing a bit. In its most recent quarter, it cut prices steeply in a bid to gain market share. But HP's PC group lost money, and Dell still continued to gain market share faster.

Put another way: PCs from Dell cost more than those from HP (sometimes as much as $250 more for equally configured machines, according to one HP representative), but the world gravitated toward Dell anyway.

Sun Microsystems has felt a cold wind coming from Dell, too. Before 1997, its workstations were the domain of Unix/RISC manufacturers. Dell is now No. 1 in workstations. In servers--Sun's specialty--Dell is in only fourth place, but is growing faster: Dell's server revenue grew 23 percent in the first quarter this year, according to research firm Gartner, while the industry contracted 1 percent.

Supercomputers have historically been the preserve of only the most technically sophisticated companies. But the increased popularity of clustering has made it possible for ordinary server makers, including Dell, to compete for big lab and university contracts. Dell, according to its own figures, sold more high-performance clusters in the first quarter this year than any other company.

Live and direct
A substantial portion of the company's success can be attributed to direct manufacturing and marketing. Because it sells directly to customers, it can change its prices and configurations daily (or even hourly), as component costs shift. In contrast, HP must try to predict component prices and use these estimates to set its retail prices--which must stay steady for a few weeks, to keep retailers happy. If component prices rise, HP loses. If they drop, Dell can undercut HP.

The direct model, however, can't explain all Dell's success. Gateway does the same thing but has faced rocky seas since the PC market slowed down in August 2000.

The real reason for Dell's success is that the company follows a fundamental axiom: Don't do anything stupid. It sounds like an easy motto to adopt, but few of us, in business or in private life, actually heed it. Ever tried to uncork a wine bottle with a pocket knife? There you have it.

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The company's history is strewn with examples of conservative decisions that have paid off. For example, acquisitions rarely work. Consequently, Dell has only carried out two relatively small takeovers and, when one of these wasn't working out, wound it down. Alliances can help a company enter new markets; hence, Dell cut deals with EMC and Lexmark International Group for storage and printing respectively.

Another simple rule Dell lives by: Nothing excites people like free stuff. So the company often includes extra memory or free handhelds with consumer PCs.

It works in the corporate world, too. Former employees have said that when Dell was just entering the server market, it would surprise large customers by sending three free servers with large PC orders. Once they were installed, the Dell sales rep then had an excuse to get inside the server room, see what server brands a given customer was using and undercut those rivals.

This common-sense approach, I believe, starts at the top with Michael Dell. Unlike a number of high tech CEOs, he doesn't seem energized by visions of technological grandeur or by a personal sense of destiny. Instead, he's eerily calm and rarely, if ever, ventures into daring predictions about the future or aggressively catcalls competitors.

After his interviews or public appearances, you are always left with the same sort of impression: If laser-toting aliens landed on Earth tomorrow, you'd want him to be on the short list for the negotiation team.

Ultimately, Dell the company could find its tactile, conservative approach to life upended by as-yet-unknown, faster-moving competitors. Tight margins and too-rapid expansion could also create problems. Complaints about customer support--long a Dell strong suit--have increased as its business has grown. But for now, its influence will continue to spread.