Perspective: Dell's last stand?

Watching Dell Computer stray beyond the familiar confines of the PC industry, the tut-tutters are clearing their throats in preparation for a collective "I told you so."

Not me. After consistently underestimating Dell's ability to slay giants over the years, yours truly is going to check the wait-and-see box and take it all in from the vantage point of the cheap seats.

That's not to say the conventional wisdom is wrong. In challenging Hewlett-Packard in printers (and cartridges) and Cisco Systems in switches, Dell is picking fights with some bad hombres--and on their home turf.

"No one doubts the size of Dell's mouth, but the facts show that their throat is quite small," an executive from one Dell rival told me. "There is a point beyond which Dell can't go."

The naysayers grudgingly allow that Dell does commodity distribution better than any company in the computer industry. They hasten to add, though, that the old formula can't work in new businesses where intellectual property is the key differentiator between products.

In the mid-1980s, I heard similar wishful thinking from senior executives at Compaq Computer. At the time, the thought of selling PCs directly to customers was simply blasphemous. There was just one-way to sell PCs--and that was via computer dealers. "Channel purity" (which meant big markups for manufacturers' middlemen) was considered sacrosanct.

In truth, the early crop of x86 computers wasn't all that mysterious, and hundreds of thousands (later millions) of customers were quite willing to buy from mail-order outfits.

The reasoning was that since personal computers were awfully complicated machines--obviously beyond the understanding of mere mortals--customers needed the handholding and support that only a face-to-face representative could offer.

In truth, the early crop of x86 computers wasn't all that mysterious, and hundreds of thousands (later millions) of customers were quite willing to buy from mail-order outfits. Their computers were less expensive and functioned just as well as--if not better than--comparable computers made by IBM or Compaq.

Michael Dell helped get it all started, selling computers out of his dorm room at the University of Texas. But he wasn't the only one. Sharp-witted entrepreneurs like Art Lazere at Northgate, Greg Herrick at Zeos and Ted Waitt at Gateway (yes, he sported the ponytail even then) arrived on the scene and were soon running circles around the established leaders of the computer industry.

Still, for a good part of the next decade, the computing powers-that-were chose to ignore the challenge posed by commodity clone makers. Their resistance eventually gave way because a good number of their customers preferred buying direct to buying from resellers. Even a computer blueblood like IBM dabbled for a time with its own separate PC mail-order business in a failed bid to duke it out with the mail-order crowd.

Maybe the critics are right. Maybe Dell is biting off more than it can chew.

Fast forward to 2002, and arguments with a 1988 vintage are getting recycled to explain why Dell can't successfully market "value-added" products like laser printers and routers. This is a lot different from selling PCs or even servers. Dell is even in danger of becoming the thing it most despises: the middleman

And so on and so forth.

Maybe the critics are right. Maybe Dell is biting off more than it can chew. Every winning streak comes to an end, and so will this one. Then again, upstarts have a way of changing the rules of the game.

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PCs under $300? Speaking of commoditzation, Hewlett-Packard has already started cutting prices and now sells a sub-$500 computer. How much lower will prices on branded PCs go? Based on what I've been hearing, we're not far from the day of sub-$300 systems. If I were a white-box manufacturer, I'd look into some courses at the Learning Annex.

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VCs to take their own medicine? In these irrationally depressed times, battered venture capitalists are pushing the companies they're backing to downsize like mad. But might these same VCs soon start taking their own medicine? Considering the Malthusian overpopulation in the venture capitalist community, Greylock general partner David Strohm thinks it is only a matter of time. "Ninety-five percent of the start-up companies funded after the second quarter of 1999 are not going to exist in three years' time," he says.

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How big is your wad? When he sits across from a prospective client these days, Mike Lynch, CEO of software maker Autonomy, says the first question he hears is, "How much money do we have in the bank? Then they ask about ROI." Speaking of Lynch, he goes down as a footnote in Silicon Valley history as the last vendor to speak with Upside magazine before that publication announced it was closing down.

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Dissing dot-communism Ever since the burst of the dot-com bubble, we've been treated to a rare spectacle of remorse and bitterness. Critics now regularly blame the Internet for everything from the current recession--I still prefer to call it a depression--to the moral decay of our heretofore incorruptible (ahem) business elite.

Don't you think it's time to get a new whipping boy? The now-tired mantra that the Internet was responsible for feeding "wild expectations" conflates the worst of dot-com silliness with the real legacy of the Internet. The statute of limitations on dissing irrational Internet exuberance is long over. It's about time to get with the new program.