Still Giving 'em Dell
Twenty Years in, Michael Dell's Hair is a Little Grayer--but his Taste for Beating the Competition Remains as Strong as Ever.
By John Battelle; Michael Dell

(Business 2.0) – Earlier this year Michael Dell relinquished his role as the technology industry's longest-serving CEO, promoting Kevin Rollins, Dell's president and COO, to replace him in the top job. But as Dell made clear during an interview with Business 2.0, the word "retiring"--in any of its shades of meaning--doesn't describe the famously combative founder. Ask him about his competitors or his direct model or whether his company can continue to innovate at the ripe old age of 20, and he'll still rise to the bait. In fact, he'll bite even harder these days.

Dell has turned his gaze toward the massive enterprise and consumer electronics markets, where he sees multibillion-dollar opportunities to extend his business model. He won't be satisfied until there's only one profitable player standing. And there's no question in his mind who that will be.

Why did you step down as CEO?

Kevin and I are going to continue to run the business together. But I thought Kevin deserved the recognition for the job he's been doing and I thought it was appropriate to publicly recognize his achievements and his capabilities.

You just had a record quarter. You're not exiting at the top, are you?

If you go back and look at our history, you'll find that we have about two or three quarters that weren't records; the other 76 of them or so are records. If your company's growing, it's kind of hard not to have a record quarter.

Dell is known for its direct model, one that has been copied by nearly all your competitors. Does that model still have a significant competitive edge, 20 years on?

And who do you think has successfully copied our business model?

Nearly every one of your competitors has a direct channel now.

Yeah, and basically all of our competitors lose money too. What we're focused on are the large computing and services pockets in the IT sector. That's about an $800 billion market: enterprise servers and storage and services, and products like printers and projectors and handhelds. Then, of course, you can take that approach all over the world.

You've been called the Wal-Mart of technology in the New York Times. Do you like that comparison?

Well, I guess there are worse insults. The last time I checked, they were a pretty successful company. But we are actually quite a bit different from a Wal-Mart. We have applied for about 1,700 patents. We have about 3,800 people at Dell who develop products, and we spend half a billion dollars a year on R&D. We actually manufacture things, which is very different from Wal-Mart--and very different from a lot of our competitors, who have outsourced their manufacturing to others and, as a result, can't make any money in the computer business. You can look at Dell and say, "Oh, I know who you are. You're the guy who sells computers over the telephone." And you can just be another one in a long line of people who really don't understand what we're doing. [Laughter]

If you could reflect back on when you started the company 20 years ago, did you imagine Dell was going to become such a dominant player?

Well, no, I didn't, and I don't think anyone knew how big this industry would be. One of the recurring themes in our history is that people consistently underestimated what our business model was capable of, whether it was a new product, new geographies, or new services. There's a pretty long track record of skepticism about our ability to enter new markets, followed by our succeeding. Our competitors keep making the same mistake over and over again--which is, in fact, the definition of insanity. In a weird way, I think that's one of the things that really helped our company.

I doubt that's happening anymore. The consumer electronics market certainly paid attention when you crashed the party last year. Have you really met the same kind of skepticism there?

Well, it's a bit early in the process, and I think some people have said, "Oh, you're going into consumer electronics, you're going to sell televisions and DVD players." That's a bit of a misunderstanding. It's better to say that the role of PCs is expanding as the digital home takes form. Computing is at the center of the digital home, whether it's music players or printers or digital cameras or digital TVs. We want to sell all those things.

What about the set-top box? Will I plug my cable service into a Dell?

The cable companies basically control the avenue into the home, but what you're starting to see is that the user wants to use that [entertainment] data in a different way. So you see things like SnapStream that capture video like TiVo. The store-and-forward capability of the PC is very attractive to users, but the cable companies are not going to willingly give up that control.

It seems to me that your real asset is the strong relationship the direct model yields with your customer. The customer almost sees Dell as something of an outsourced IT department.

We're taking on more and more of the e-management for customers. When it comes to small and medium-size businesses, we're often the supplier of everything--services, storage, printers, projectors, PCs, anything that has to do with digital electronics, computers, networks, communications--and we help them integrate it, install it, and service it.

How do you feel about the ongoing uptake of open-source solutions like Linux in corporations? Is the Wintel duopoly imperiled?

Anytime you have a better way to produce and sell something, and you can deliver better value, you tend to attract a lot of customers. That's what has happened with open-source. The sales cost is way down, the development cost is way down, and some pretty interesting products have come out of that. So customers want that, and obviously we're very much a part of that phenomenon. It's a good thing.

The past few years have been absolutely terrible for most IT companies ...

What do you mean?

I said "most." In a postbubble world, does the Internet still drive your business?

The adoption curve for the Internet has continued to be quite impressive, and there's still lots to do there. For example, we maintain just three days of inventory, so our supply chain's pretty finely tuned. It uses a lot of information that we get from customers and suppliers over the Internet. But a lot of companies still have a long, long way to go before they can declare that they've really used the Internet in their supply chain. Again, it's still early days there.

IDC and others are predicting double-digit growth in the IT sector again. Do you feel confident that we're coming out of what was--for the rest of the industry, anyway--something of a nuclear winter?

It's getting better. As corporate profits come back, companies are spending again, and they've got a lot invested in IT to begin with. And we would expect to grow at a rate significantly above the rest of the market.

Do you think a company could start out of somebody's home, like you started yours, and grow to be a competitor to Dell someday?

I think it's certainly possible, but the more important question is, What would they have to do to accomplish that? They would have to come up with something that is dramatically better than what we offer today. And that's exactly what we're trying to do! [Laughter] We pride ourselves on reinventing our own business model before somebody else does. It might be easier for one of your readers to do something dramatically better in another industry, but everyone deserves a fair shot at whoever they want to go after. We're trying every single day to come up with ways to do what we do better.

What might impede your growth or get in your way?

We spend a lot of time on our organization and developing people. Our growth this year is not going to be as high as our percentage growth might have been 10 or 15 years ago, but in terms of absolute dollars, our growth this year will be like the whole size of the company in 1997. That's what we worry about--our infrastructure and the pipeline of talent in the company to support that kind of growth, adding new countries, growing new product lines. There's always plenty to worry about.

How important is the enterprise business--servers, storage, and so on--to that growth?

That business last year was $9 billion [total revenues were $41 billion]. Our server business grew 40 percent in the fourth quarter; storage grew 47 percent. I've got a large services business that's growing--really in every region, every product line all over the world.

Are you committed to sticking to hardware? The margins in software are pretty extraordinary. Has it ever crossed your mind that maybe you could do a better job than some software companies out there--perhaps the one with $60 billion of cash on hand?

Well, we have to remember what we are, and where our best opportunities are. There are various ideas always floating around either here [at Dell] or within the industry about alternatives to one successful company or another. We're not really wedded to anything other than providing great value to our customers.

John Battelle is a visiting professor at the University of California at Berkeley and author of "The Search" (Portfolio, late 2004).