A Dell rebound--not so easy

There you had Google, the latter-day incarnation of the 1927 New York Yankees, tripling its fourth-quarter earnings on an obscenely strong 67 percent revenue gain. Less than an hour later, Dell, the one-time leader of the pack, issued an earnings warning and announced that founder Michael Dell was replacing Kevin Rollins as the company's chief executive.

A tale of two companies on a funky Wednesday.

Google does software, and Dell does hardware. The companies contend in entirely different realms. So at first blush, there's really not much to connect the two. But surface differences aside, both companies really do share a common DNA. Both charged out of the gate as ballsy upstarts and exploited a genius insight about their respective businesses before rivals could react.

For Google, it started--but did not end--at search. That was only a springboard. Others like Yahoo and AltaVista were in the search business a lot earlier but too slow to compete. Same went for Microsoft, which talked a great game about software as a service.

Fact is that Google did a better job putting the idea into practice. Now it's even branching into Web-based office applications, Microsoft's very bread and butter. The reality is that some, perhaps many, of Google's new ventures may fail, but there's no rush--not when the company's sitting on a hoard of more than $11 billion in cash and marketable securities.

Dell's misfortune is that its original gene pool mutated in the wrong ways. But for most of its 23-year history, the company was a scrappy outfit that gave fits to bigger, more established (i.e., self-satisfied) rivals.

In the early days, few people outside of Michael Dell believed he was destined to come out atop the heap. In fact, when Dell began what was first called PC's Limited, he wasn't breaking new ground. In 1984, there were already a number of mail-order computer companies jockeying with each other. Dell wasn't even first among equals. He had to battle his way past street-smart entrepreneurs like Northgate's Art Lazere and Greg Herrick at Zeos and Ted Waitt over at Gateway 2000.

It took less than a decade for Dell to establish its primacy and then set its sights on IBM, Compaq and Hewlett-Packard. At first, these fat cat companies were in denial. They couldn't believe a direct marketer could ever eat their lunch. But that's what happened.

There's an endless debate among historians whether the times make great leaders or whether great leaders paint their own canvasses. In this case, maybe it was a bit of both. By the time Dell was ready to expand into new businesses, PCs were no longer esoteric items. As a second generation of computer users entered the work force, most computer users no longer required specialized hand-holding from resellers.

The mainstream computer companies relied on so-called value-added middleman who tacked on unnecessary cost. But as PCs morphed into commodities, price and distribution--Dell's strong suit--put the big guys on the defensive. What's more, Dell could reconfigure its models on the spot to meet individual tastes. Before long, the IBMs of the world were struggling to keep pace in a cost game they couldn't win.

Dell's salad days seem like an eternity ago. But we're not talking about ancient history. The company took a wrong turn only a couple years back. First, there were problems with after-sale service. Instead of fixing the problem, the company denied its existence. Then it turned defensive. And then, inevitably, it lost customers.

Product quality issues also surfaced with annoying frequency. Laptop design, in particular, was a problem--above and beyond the recall of 4.1 million notebook computer batteries. Recurring complaints about the products came while Dell's rivals were learning how to squeeze expenses out of their business process. All the while, Dell faced a resurgent HP, a nimble, aggressive Lenovo and an Apple with a penchant for pulling rabbits out of its hat.

Now Michael Dell is back at the helm, but the Wall Street guys are making too much of a fuss about his return. He's not a miracle worker and any recovery is going to take time.

Of course, there's no reason why Dell can't rebound from past mistakes. The company recovered from a painful stumble in the early 1990s. But the technology industry has changed a lot since then. Even if Dell regains its form to the point where its service and distribution are the envy of the computer industry, can it again make customers excited about its products?

Solve that last question and life becomes a lot easier.