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Dell sings Net's praises

An ever-larger share of Dell Computer's fortunes depends on the growth of sales over the Internet, the company's chairman says.

At PC Expo today Dell Computer (DELL) CEO Michael Dell sang the praises of the Internet, saying a growing share of its business is predicated on explosive sales growth on the Net.

Dell said that the company is now at a "run rate" of $500 million in sales on the Internet, cruising along at a clip of $1.5 million a day.

"The Internet turbocharges the whole process of serving the customer directly," said Dell. "[The Net] is a great opportunity for virtual integration," he added, referring to the Net's ability to allow a company to conduct business more efficiently by integrating processes over the Internet.

Dell hammered home the power of the Internet in driving Dell's business model and, as a corollary to this, improving the efficiencies of direct computer buying.

Some customers have shaved 15 percent off their purchase costs by buying on the Net, he said. This includes the highest of high-end computers: servers that go for $30,000 apiece, Dell said. He went on to refer to "tens of thousands" of Dell customers who have personalized the Dell Web site for their individual buying preferences.

According to Dell's vision, the Net will play a role in every aspect of his company's business: from the customers who log on to the Dell Web site and configure the computers they want to buy, all the way to the factory floor. "I see component suppliers having a direct window into the factory floor via the Internet," Dell said, alluding to the improved efficiencies obtained from more direct, immediate communication between Dell and its part suppliers.

Dell's financials already say loud and clear that its chairman's strategy is paying off. Analysts see few, if any, holes in Dell's business model. "All our research tells us that Dell is doing the right thing," said Richard F. Doherty, director of The Envisioneering Group, a market research firm in Seaford, New York.

"Dell, Micron, and Gateway 2000 are not the exception anymore, but the rule," Doherty says, referring to the direct marketing model and the power of the Internet to enhance this model.

Doherty said that first-time buyers usually don't come to Dell, but go to companies like Compaq. But he said that once buyers become more savvy and compare Dell pricing and products, component for component, they become, in an increasing number of cases, loyal Dell customers.

Michael Dell also made a few digs at Compaq and its expected plans to revamp its selling strategy to allow for build-to-order assembly by resellers of Compaq computers. "You're inserting quality risk, not adding quality," he said. Dell went on to say that by allowing resellers to participate in a build-to-order strategy, the chance of quality control is diminished, rooted in the problematic strategy of adding another step to the assembly process.

Not surprisingly, Dell also took some shots at network computer (NC) strategies from companies like Oracle and Sun Microsystems. He said the NC doesn't really save anyone any money but merely shifts purchasing of computers from one set of companies (The Intel-Microsoft alliance) to another set of companies (Oracle and Sun).