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Taking a bite out of Apple

Dell Computer executive Bill Rodrigues discusses how Dell dethroned Apple in the education market--and why the crown won't be relinquished.

 

  
   
Taking a bite out of Apple
By Charles Cooper
Special to CNET News.com
June 14, 2001, 9:00 a.m. PT

Think education and you think Apple Computer.

It's a natural enough association. The Cupertino, Calif., company assiduously seeded the education market with its computers back in the days when the Apple II was considered state of the art. Among other considerations, the idea was that if you got 'em while they were young, you had a better chance of hooking them when they graduated into the consumer world.

But Apple no longer owns bragging rights as king of the classroom. The title belongs to Dell Computer, which has edged past Apple to become the No. 1 supplier of PCs in the education market. And Dell, which last month declared its intention to launch a price war, is ready to go to the mattresses to make sure it retains that crown.

Although the company does not break down the magnitude of its sales into the education market as a percentage of total revenue, Dell recently disclosed it had nabbed more than 50 multimillion-dollar deals in the K-12 and higher-education markets within the last 12 months.

Apple has since worked through some of the organizational issues that undercut its success selling into the education market. But Bill Rodrigues, who came over from IBM two and a half years ago to direct Dell's education sales operations, believes the change in leadership points to the more fundamental advantage a direct business model enjoys over an indirect one.

And that, he says, translates into closer communication with customers and more flexibility to cut attractive deals with a set of buyers who are keen to make every cent count.

Rodrigues talked in a recent interview about how he plans to keep Steve Jobs in his rearview mirror.

Q: Apple's traditionally been the leader in education sales. But it's lost that title to Dell. Bad fumble by Apple, better execution by Dell--or a combination of the two?
A: I think it was pretty good darn execution by Dell. When I was with IBM, one of my last responsibilities was for education in the U.S. and Canada. And as I looked at my competitors, it seemed every time I turned around, there was Dell. I made it part of my job to gather as much information on Dell as I could--especially for the education market. And I found that the direct model is absolutely optimal.

What's the pitch, more or less, that you make to a school district or university that's traditionally been a Mac shop?
Most of Dell's competitors deal with multi-tiered distribution systems, not the customer. What was frustrating for me, as the one who ran the business (at IBM), was that I didn't know where the PC stuff landed. When you look at the professional world, it's primarily a Wintel world. You don't walk into many corporations and find Macs spread all over the place. If you look at the education market, they're looking for pretty basic things. They want a reliable supplier so they can get the order when they're supposed to get it...and on the back end, they are looking for us to do a pretty good job on service and support.

So what you're offering to the school district is the advantage of one business model vs. another?
Yes. The other thing you have to look at is total cost of ownership, and when you have multiple channels, it's going to cost more to maintain (purchased equipment).

Do you also use the wide gap in the numbers of people using Mac vs. the number of people using Wintel systems?
When you look at the professional world, it's primarily a Wintel world. You don't walk into many corporations and find Macs spread all over the place. For the most part, the majority of apps and computers you find in the commercial environment are on the Wintel platform. There's also the desire and concern of the superintendents and technology coordinators in the districts who want to make sure they are preparing their students for the 21st century.

To what degree, if any, is the changeover in leadership reflected in market demographics? That is, you have had several graduating classes of teachers who grew up using Windows-based systems, whereas a few years earlier they might have been using Apple systems.
Those are certainly factors in as far as the new teachers coming onboard in these school systems. There are still a large number of teachers who've been there for a long time, and there's an older Apple installed base. One of the biggest things you have to overcome in that population is the thought that, Gosh, will we still have the rich application base that we had with the Mac platform? In actuality, the app base is much richer.

Is the education market any more competitive than any of the other areas of the business where Dell competes?
It has always has been very competitive. One of the things to add to the list of things that I said Dell offers is that we can deliver quality product at very attractive prices. For education customers, who are very, very price conscious and always looking to extend the dollar as far as they can, this becomes a very important factor. We have always been able to provide very attractive proposals for our customers.

So is there much that's different about selling into the education market? Are there different demands for service and support?
Not really. In terms of what we do, it's pretty standard across the board. The thing that becomes more differentiated at this level is that we have teams of people who focus on establishing key alliances to provide best-of-breed so we can bring the specific things to the table that we know our customers are looking for.

Until last year, Apple educational sales were handled via a combination of in-house and third-party sales reps. When the company brought everything in-house, the brass subsequently acknowledged the move wasn't timed well. But they've been working through that issue and are seemingly getting back on track. In particular, the iBook has received a very warm welcome in the education market. Do you have anything that meets it?
The thing I find interesting is that when (Apple CEO Steve) Jobs says this will get them back into a leadership position in education, I don't know what that means. Roughly 14 percent of education market (dollars) is spent on notebooks. So, given that fact, even if he was the share leader in that space, I don't know how that gets them back into the leadership position.

Still, Apple's been very clear about its intentions to recapture share in a market where it's historically been the leader.
In the first quarter, it doesn't look like Apple gained any momentum. It will be interesting to see how it does in Q2; so far, all the numbers just seem to indicate the opposite. Right. And what I would say is we have products that compete very well. One of the very fastest parts of our education business is our notebook line. In the first quarter, it doesn't look like Apple gained any momentum. It will be interesting to see how it does in Q2; so far, all the numbers just seem to indicate the opposite.

If you win away a school district that was an Apple account, how is that different than winning away an account from one of your other competitors?
Once a district makes up its mind to start transitioning away from the Mac, it's typically going to be very difficult--that is, what's the reason going to be for them to go back? It would be a pretty big challenge for them and would go against their decision to migrate in the first place.

In May, your president, James Vanderslice, declared a full-scale price war as part of a bid to increase market share. How will that play out in the education market as you go up against Apple?
It's important to understand that the business comes in two flavors. One is a very transactional way: (Customers) go to the Web, order one system here, five systems there. The other is on a project basis, and many of those are typically done in a deal-by-deal basis, and each of them is very unique.

What Jim was referring to will be reflected in our list pricing...We've taken the stance that we want to win. But if, all of a sudden, a competitor decides to go ridiculous, like losing 40 percent on a deal, that doesn't make a lot of business sense to us. We'll treat this on a deal-by-deal basis.

How far is Dell prepared to go on price to keep Apple from retaking the crown?
I can't even answer the question because I don't know the answer. Right now, we don't have a situation where I even need to be thinking about that. As the dynamics of market change or shift, based on any variable, then we'll have to evaluate where we are and what we need to do. At the end of the day, the customer to me means more than anything. We're all paid on the customer experience, and in education, it's extremely important because it's a very close-knit community.

What does education comprise as a percentage of Dell's total sales?
I can't answer, but it's probably a little bigger than you think.

Do you think Apple's lost its edge?
As I talk to customers, I feel pretty good about the value proposition we bring to the table--custom building, custom loading, free testing, delivering on time a quality product at good prices and giving excellent support on the back end--coupled with the quality of people we have in the field.

Fair points, but again, do you think Apple's lost its edge?
I can't answer that. I can only let my customers' dollars speak for themselves. That's how I get feedback on how we're doing, besides the verbal feedback. And so far they're saying we're listening and doing the right thing.