(FORTUNE Magazine) – Late in August, 1,225 businessmen and women, ranging from information technology pros to buttoned-up CEOs, journeyed to Austin, Texas, like pilgrims flocking to Mecca. They filled half a dozen downtown hotels and endured three days of 101-degree heat, all for the chance to hear Michael Dell kick off Dell Computer's inaugural DirectConnect Conference. Michael Dell, the oracle of Austin, would reveal how he'd made the Internet part of his company's success and explain how they could too.

Dell did that--and added a warning that survival won't be easy. "We believe that the Internet will be your business," intoned Dell, flashbulbs lighting his face. "If your business isn't enabled by information, if your business isn't enabled by customers and suppliers having more information and being able to use it, you're probably already in trouble." He added: "The Internet is like a weapon sitting on a table ready to be picked up by either you or your competitors."

It's a weapon, all right. And as the Austin gathering shows, Dell has made the story of how his company tamed the Internet a machine gun in the war against IBM, Compaq, Sun, and other giant computer makers. In recent TV commercials, Michael Dell talks more about the Internet than about his company's PCs. What you may not get from those commercials, or from his speeches, is that Dell's Net tale is more than just a marketing pitch; it's his plan for the company's future.

So far this year Michael Dell has received 1,700 requests to speak around the world. He'll honor 35 of those with talks numbingly titled "The Dynamics of the Connected Economy" or "The Dell Advantage" or "NetSpeed: The Supercharged Effect of the Internet." Each talk deals with the Internet, the changes it brings, and how Dell's online sales keep growing--they now account for 40% of total revenues. Dell's book, Direct From Dell, is a 236-page infomercial ranking 614th on Amazon's list of bestsellers, outselling tomes by or about the Internet's other high ambassadors: Sun's Scott McNealy, AOL's Steve Case, Netscape's Jim Clark. Top executives at companies like General Motors, Ford, Eastman Chemical, and Whirlpool have sat down with Dell to learn how his Internet strategy works. Emissaries from other FORTUNE 1,000 companies come to Dell's Round Rock, Texas, headquarters for canned tours of Metric 12--the factory where corporate desktop computers are built--to learn how the Net connects the customer to the factory and the factory to the supplier. "When customers come to Austin, we show them the Web farm, how we operate our business," says Dell. "It's intuitive to them that they would learn from us."

What they hear is this: When it comes to the Internet, Dell Computer gets it. And by implication, so will you if you buy a Dell server, storage device, PC, or laptop. "The company's being pulled inside out," says Joe Marengi, the ruddy-faced manager of Dell's corporate sales division. "What we're looking at is how does Dell become an Internet company that sells into the IT space, rather than an IT-selling company that happens to use the Net."

Looking at the future makes sense; today's PC industry is a mess. Sure, worldwide unit sales in the third quarter rose 25% over those of the same period last year, but people are opting for cheaper PCs. And if companies like Sun are right, many consumers will ditch those PCs for wireless phones, handheld devices, set-top boxes, and anything else that hooks to a server for quick Internet access. Moore's law--the theory that processor power will double every 18 months--is losing cachet to Metcalfe's law--the idea that a network's value increases exponentially as the number of users on the network increases geometrically.

Laments Joel Kocher, CEO of computer maker Micron Electronics, who once headed worldwide marketing and sales at Dell: "I've lived through a world where the PC was the center of the universe. But today, customers are putting a heck of a lot more value on the notion of having e-commerce capabilities and high-quality Websites than they are on the box. It's no longer 'Whose box am I going to buy and how fast is it?' "

Companies like eMachines and Microworkz.com now bundle cheap PCs with Web connections and have forced other PC makers to meet their prices. In 1998 just 0.8% of all PCs sold at retail for less than $600; by this summer that percentage had risen to 47%, according to industry watcher NPD Intelect in Port Washington, N.Y.

So PC makers have been scrambling. On Oct. 18, IBM, the fifth-largest PC vendor in the U.S., announced that it will no longer sell its consumer machines in stores. On Nov. 2, Packard Bell NEC, ranked seventh, announced that it will abandon the U.S. market altogether. No. 2 Compaq has been unable to get an Internet strategy in place that doesn't alienate its retailers, and its costs keep rising.

That leaves Dell. At first glance, the No. 1 PC maker appears to be doing fine. In response to the bargain brands, Dell is expected to announce its own cheap PC on Nov. 30, an iMac-inspired, stylish box called the Webpc. It will feature a one-button connection to Dell's customer-support Website.

But less than 15% of Dell's expected $26 billion in sales comes from the consumers who might buy a Webpc. The bulk of its business is from corporate and government customers, two groups that aren't buying a lot just now. Many companies have frozen IT spending as they wait out Y2K. Rising memory prices and a delay in Microsoft's new operating system might slow technology purchases even more.

These uncertainties have held Dell's stock to a 10% climb this year, vs. a 12% rise of the S&P 500. That's right, Dell, the best-performing stock (up 68,400% since Jan. 2, 1990) in the best-performing decade (up 318%) of the best bull market of all time, is flat.

Which brings us back to Michael Dell's Internet strategy. As early as 1994, he saw that the Internet was yet another way to promote the idea of selling direct--Dell's near-religious goal of dealing one on one with the customer. That June an informal team launched Dell.com, loading the site first with technical-support information and then with price guides that let customers mix, match, and price components. By late 1996, Dell.com was selling laptops, desktops, and servers, ringing up $1 million in revenue every day. Today the site gets two million visitors a month and sells more than $30 million in products a day--an increase of 100% since February. By contrast, Amazon's 11 million visitors a month translate into just $3.5 million in sales a day (of course, a book is cheaper than a server).

The move to the Internet has paid off in more than just increased revenue. It has helped the company cut sales, general, and administrative expenses from 15% of 1994 fiscal-year revenues to an expected 9% this fiscal year. Michael Dell believes he can use the Web to wring out enough inefficiency to cut these costs in half.

On its own, this story of Dell's move to the Internet is impressive. But the company makes sure its corporate customers memorize one key fact about the tale: The money-making, always-on, super-efficient Dell.com site runs exclusively on servers built by Dell. That's a favorite fact at Round Rock. In the course of six recent interviews, half the executives emphasized the Dell.com-Dell server connection. Dell, it seems, has become Dell's favorite point of reference.

The tactic works.

"Dell is clearly one of the top few companies that have really been successful on the Internet," says Fred Buehler, director of electronic business for Eastman Chemical, a $4.5-billion-a-year chemical maker in Kingsport, Tenn. In 1997, Eastman opted for what it and Dell term a "bulldoze"--sweeping out Eastman's hodgepodge of computers for what are now 10,000 Dell machines. Eastman was thrilled with the results and today is looking beyond hardware. It wants to be--surprise--an e-commerce company. So ten Eastman executives have spent the past couple of years traveling back and forth between Tennessee and Texas to study Dell's system.

The result of that effort, Eastman.com, went live in July. One of its many features enables customers to have customized pages where they can track orders, get technical help, and view past orders. It's an imitation of Dell's Premier Pages, the 27,000 Dell-created Websites that perform the same functions for Dell's corporate customers. Dell's pages also show each customer the configuration of every computer bought, the price paid, and even a timeline of when Dell plans to introduce the next version of the computer. Dell's suppliers have their own version of Premier Pages at the password-protected site Valuechain.Dell.com. In the past eight months, the company has pushed its top 33 suppliers (from which Dell buys 90% of its goods) to use the site for data on how they measure up to Dell standards, what orders they've shipped, and the best way to ship. The goal is to link Premier Pages to Valuechain, so that as customers type in their orders, a supplier will see immediately that it needs to ship Dell however many new motherboards or liquid-crystal displays. Right now, Dell keeps six days' worth of inventory on-site. The goal is to get that number even lower.

Eastman isn't as far along in its own Web initiative, but it's trying. "We've gone out and done benchmarking with varieties of companies," says Buehler. "But Dell's had more of an influence on what we've done than anyone."

Dell doesn't get paid for this kind of consulting--not yet, at least. Vice chairman Kevin Rollins says that's in the works: "Over time, Dell will evolve to be not only an infrastructure business but a repository where people can come and learn how it's done: how you relate to customers, how you set up a Website, how you manage a Website, how you set up new ways to reduce the cost of your business.

"There are consulting firms that will show you how to do it," he adds. "But go back and look at their company: Have they ever done it? Generally they have not. They have just done it for other companies. We have an advantage. That's something our customers are pushing us toward. And it will create a new revenue and profit stream."

Could consulting ever become Dell's main focus? "In terms of sheer numbers, that would be incredibly hard to do," says Michael Dell. "The core business for us remains the products. The rest complements that."

So as companies turn to Dell, desperate to study how it operates, Dell proudly pats its PowerEdge network server and PowerVault storage device. The two are integral pieces to hosting a Website--a site as "robust" as, say, Dell.com--and also happen to be two of Dell's most profitable machines. While gross margins on desktop PCs are expected to drop to 18.5% in fiscal 2002 from 19.5% this year, margins on servers should continue to hover around 32%. No wonder Dell wants a greater piece of the server market. Thanks to its Net strategy, it may well get it. When SG Cowen/Datamation surveyed over 300 corporate IT users about which supplier they bought servers from, 30% bought from Compaq and 15% from Dell. But when Cowan asked which supplier they'd use in the future, Dell's number climbed to 18%, while Compaq, long the leader in servers, saw its number slip to 23%.

"Companies are confused; they don't know what the Internet means," says an analyst at one of Dell's biggest institutional holders. "So when the CEOs get back [from Austin] to their offices, they call up their purchasing managers and say, 'Let's do business with these guys, they have their act together.' Dell's so well positioned, but people still think of them as a PC company. That's why the stock's down."

Which may make this, of course, the perfect time to buy Dell stock.

On a recent, unusually warm afternoon in Detroit, Michael Dell laid out the Dell-on-the-Internet strategy for a meeting of the Economic Club of Detroit at the city's mammoth Cobo Conference Center. About 1,600 people paid up to $22 to listen to the 34-year-old CEO. After eating a lunch of chicken, rice, and cubed carrots, and chatting amiably with the man seated next to him, Kmart CEO Floyd Hall, Dell took the podium. Standing between two nine-foot-tall screens connected to his Dell Latitude laptop, Dell went though a speech customized for the Detroit crowd, in which he explained how the likes of GM, Ford, Caterpillar, Case, and Deere could significantly boost their return on assets by adopting Dell's Internet model. The crowd shifted in their seats as a slide compared heavy machinery's return on invested capital last year (13.7%) to Dell's (195%). But the highlight came when the prepared remarks were over. As listeners passed their questions up to the stage, the moderator looked at one and turned to Dell: "How will the Internet affect retailers like Kmart?" Floyd Hall's face turned beet red under his white hair. Dell paused, then reassured Hall, "The physical retailers won't go away." Not if they just put their trust in Dell.