Dell Direct

9051 Words Sep 28th, 2012 37 Pages
GRADUATE SCHOOL OF BUSINESS STANFORD UNIVERSITY
CASE NUMBER: EC-17 November 2000

DELL DIRECT1
In 1995, a manager from a leading Japanese computer company was recounting his company’s plans to conquer the US Personal Computer (PC) market: “We have a strong brand name in consumer electronics, and what’s most important, we build many of the components that are needed in the PC ourselves: monitors, audio equipment, CD-ROM, DRAM, and so on. This will give us a tremendous advantage over American competitors, who have to buy everything outside” [1]. Several years later, it looks like the competitive weapon of this and other Japanese electronics giants had misfired. Hitachi, Sony and Fujitsu have spent vast resources trying to crack the US PC
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This New Computer Industry is largely based on a common silicon platform, upon which various companies build a very standard computer platform, upon which you put systems software that is largely common throughout the industry, upon which you sell packaged applications, applications that you buy, like records or CDs, at a store. Whoever has a storefront, telephone or warehouse can get into the distribution business.2

This horizontal structure enabled IBM-PC “clones” like Compaq, a host of start-ups and established computer firms like Hewlett Packard to enter the market and manufacture their
2

See Computer History Website http://gobi.stanford.edu/Computer_History/.

by

Haim

Mendelson

and

Anne

Korin

at

2

own, IBM-compatible PCs. The cutthroat competition among PC makers shifted the bulk of the profits to two highly-concentrated industry “slices”: the operating system, where Microsoft had a virtual monopoly, and the microprocessor, which was dominated by Intel. One of the manufacturers of IBM-PC “clones” was Dell. Dell: Birth and Childhood (1983-1990) In 1983, Michael Dell was a college freshman, who upgraded IBM-compatible PCs in his spare time in his dorm room at the University of Texas at Austin. Dell quickly realized that instead of upgrading older machines, he could buy components and assemble the entire PC more cheaply by himself. Then, he

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