Dell to concentrate on supplying Net firms
Dell Computer no longer wants to be thought of as a mere PC maker and is redirecting its energies to sell services and programs aimed at Internet companies.
The company, which pioneered selling computers directly to consumers and businesses, is redirecting its energies to sell Web servers, business consulting services, venture funding and business incubation services to application service providers, Internet service providers and other companies looking to use the Internet as their distribution channel, Dell announced today.
"Some would say we are the poster child for the Internet," said Dell, noting that the company now derives half its revenues from online sales. "Dell has tremendous credibility in this market."
The term "Internet infrastructure" is to hardware makers these days what "B2B commerce" is to software developers: an all-encompassing expression du jour used to describe an opportunistic expansion of their historical business.
Although Dell continues to rake in profits from PC sales, many analysts and computer executives have predicted desktop profits will plateau in the future, which could potentially stunt Dell's historically phenomenal growth. In any event, the rush among businesses of all sizes to expand onto the Internet has prompted Dell and other established computer companies to use their brand names and customer relationships to expand into back-end hardware and services.
Dell had a mixed financial year in 1999, especially when compared to previous years of blistering 50 percent plus growth. The company surpassed Compaq in market share in the U.S. in calendar 1999. However, the company has turned in slightly disappointing results the past two quarters because of component shortages. In the future, the company has said revenue may grow at lower rates than in the past. Nonetheless, Dell's stock has continued to climb steadily.
Under the new strategy, for instance, Dell will more strongly emphasize selling or providing services, a market where it has deliberately limited activity before.
As previously reported, Dell announced the PowerApp appliance server line, running on Red Hat Linux and Microsoft's Windows 2000, and designed for Web hosting and traffic management applications. The servers start at $1,899.
The products are part of Dell's strategy of staking out new markets rather than going after companies switching from older systems, said Michael Lambert, senior vice president of enterprise computing for Dell.
"What we're not going to do is go after the legacy market. We'll let our competitors slug that out," Lambert said. "It's a shrinking market, not a growing market."
The company announced four other new initiatives designed to lure online service companies. They are:
• Service Provider Direct, a set of programs designed to meet the needs of application service companies
• "E"xpert Services, a program with Arthur Andersen and Gen3 to provide Internet business consulting to companies
• Universal Access, which refers to pushing universal connections to the Web via narrow and broadband connections, as well as wireless Internet access
• Dell Ventures, which will provide venture funding and business incubation services to private companies.
The ISP and ASP businesses are dominated by small and medium-sized businesses that need this type of third-party assistance, according to Kevin Rollins, vice chairman at Dell. These companies also need creative financing because they typically do not qualify for traditional financing.
In announcing the shift, Dell cited research indicating e-commerce is growing at a compound annual rate of 100 percent, with companies spending $370 billion by 2003 to build out Internet services. "The implications are pretty clear," he said. "Businesses can no longer afford to talk about what they will do on the Internet. They must act, and act quickly."
Dell is looking to build on its existing customer relationships and products to reposition itself, he said. For example, because Dell sells directly to companies, it can also market the services of smaller companies it has invested in or is supporting.
"We can lend the power of our brand," Rollins said.
Despite the new emphasis on behind-the-scenes computing, Dell says the new initiatives do not mean the company has given up on the desktop PC market. Although desktop and notebook computers bring continually lower profit margins, they are still the most common way of accessing the Internet that Dell now wants to support, said Steve Felice, vice president of services for Dell.
"If you look at the forecasts, the desktop market still has growth left," Felice said. "But that doesn't mean we should forego a significant opportunity to build upon the position we already have."