Matching dell

Harvard Business School

9-799-158
June 6, 1999

Matching Dell
Between 1994 and 1998, the revenue of Dell Computer Corporation rose from $3.5 billion to $18.2 billion, and profits increased from $149 million to $1.5 billion. The company’s stock price rose by 5,600%. During the same period, Dell grew twice as fast as its major rivals in the personal computer market and tripled its marketshare. In the first half of 1998, Dell reported operating earnings that were greater than the personal computer earnings of Compaq, Gateway, Hewlett1 Packard, and IBM combined. On Forbes magazine’s list of the richest Americans, Michael Dell, the 33-year-old founder of Dell Computer, ranked fourth with an estimated worth of $13 billion. He trailed only Bill Gates, Warren Buffett, and Paul Allen onthe list and was worth more than Gates had 2 been at the same age. Dell Computer had pioneered the widely publicized “Direct Model” in the personal computer (PC) industry. While competitors sold primarily through distributors, resellers, and retail sites, Dell took orders directly from customers, especially corporate customers. Once it received an order, Dell rapidly built computers to customerspecifications and shipped machines directly to the customer. The success of the Direct Model attracted the intense scrutiny of Dell’s competitors. By 1997, headlines such as “Now Everyone in PCs Wants to Be Like Mike,” “Compaq Reengineers the Channel: Will It Be Enough to Slow Dell’s Momentum?” and “In Search of Greener Pastures, Gateway 3 Moves on Dell’s Turf” peppered the PC trade press. By late1998, virtually every major PC manufacturer had taken some step to match Dell’s approach.

The Personal Computer Industry
History. Electronic computers emerged from military research undertaken during World War II. In 1949, the magazine Popular Mechanics predicted that “Computers in the future may…perhaps only weigh 1.5 tons.” For the following three decades, large mainframe and minicomputers,produced by vertically integrated firms such as IBM and Digital Equipment Corporations (DEC), dominated the market. As late as 1977, Kenneth Olsen, founder of minicomputer maker DEC, opined, “There is no reason for any individual to have a computer in their 4 home.”
Professors Jan W. Rivkin and Michael E. Porter prepared this case from public sources with the assistance of Research AssociateFaramarz Nabavi as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The case draws on a report prepared by Charlie Bruin, Markus Cappel, Tom Galizia, and Laila Worrell, all MBA 1998. Copyright © 1999 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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This document is authorized for use only in Estrategia y entorno denegocios (Emmanuel Gonz?lez Yam?s) by Ana Carmenza Neira from July 2011 to January 2012.

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Matching Dell

However, electronic hobbyists were already purchasing mail-order and retail kits which allowed them to assemble primitive computers at home. These kits pieced together components that were either altogether new or newly affordable: microprocessors made by start-ups such as Intel,random-access and read-only memories, power supplies, and so forth. (A Glossary at the end of the case defines technical terms.) Between 1975 and 1981, a series of firms began to offer increasingly integrated, pre5 assembled personal computers. Start-ups such as Apple Computer and MITS, and midsize firms such as Tandy / Radio Shack and Commodore, led the early market, gaining popularity among...