Harvard Business SchooI 9-598-116

Rov. Marcl 26, 1999

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Copyrigll 1998 by llo Irosidonl and IoIIovs of Harvard CoIIogo. To ordor copios or roquosl pormission lo
roproduco maloriaIs, caII 1-800-545-7685 or vrilo Harvard Businoss SclooI IubIisling, Boslon, MA 02163. No
parl of llis pubIicalion may bo roproducod, slorod in a rolriovaI syslom, usod in a sproadslool, or lransmillod in
any form or by any moansoIoclronic, moclanicaI, plolocopying, rocording, or ollorvisovilloul llo
pormission of Harvard Businoss SclooI.
1
DeII OnIine
"Il vas MiclaoIs idoa. Hos a visionary in our induslry, slalod Morlon Topfor, Vico
Clairman of DoII Compulor Corporalion, gosluring lovard MiclaoI DoIIs offico across llo laIIvay.
"Tloros no doubl llal DoII OnIino is a lugo innovalion, jusl as DoII Dirocl vas a docado ago. Bul
limos lavo clangod. Wo aro nov a big company, vill 1997 rovonuos of noarIy $12 biIIion and a
grovll ralo of 50 ovor llo Iasl llroo yoars. Wo lavo lo bo nimbIo bul mollodicaI in lov vo absorb
and buiId on llis nov approacl of going lo marIol, addod Topfor.
In }uIy 1996, DoII Compulor lad Iaunclod ils onIino vobsilo, vvv.doII.com. Tlo onIino sloro
mirrorod llo oxporionco cuslomors lad vlon lloy caIIod DoIIs loII-froo 800 numbor lo pIaco a dirocl
ordor. Silo visilors couId cuslomizo a compulors configuralion lo suil lloir noods, noling lov lloso
clangos improvod porformanco and affoclod pricing. AddilionaIIy, cuslomors couId clocI on llo
slalus of lloir ordor al lloir convonionco and ovon rocoivo loclnicaI supporl . Tlo sloro vas
opon 24 lours a day. Tlo rosponso lo llo rolaiI sloro vas ovorvloIming, vill lundrods of llousands
of poopIo visiling llo vobsilo oacl vooI and gonoraling miIIions of doIIars of rovonuo for DoII.
In addilion lo ils onIino sloro, DoII aIso dovoIopod Iromior Iagos, onIino inlorfacos vill ils
Ioy corporalo accounls. Cuslomors viovod llo Iromior Iagos lo gol loclnicaI loIp, lo accoss lloir
DoII accounl oxoculivo, or in somo casos, lo pIaco ordors using llo cuslomors proforrod pricing and
slandard configuralions. Scoll IcIorl, llo 30 yoar oId diroclor of DoII OnIino, romarIod,
DoIIs foray inlo Inlornol-basod saIos, marIoling and supporl las boon a big
vin. Woro golling a Iol of pubIicily aboul soIIing $3 miIIion a day on llo Inlornol
and our goaI is lo oxoculo laIf of DoIIs saIos voIumo ovor llo Inlornol villin llroo
yoars. Ils aIso cIoar llal major compolilors sucl as Compaq aro allompling lo broaI
vill lradilion and imilalo DoII, nol onIy by going dirocl lo llo consumor, bul aIso by
Iolling llo cuslomor configuro lis/lor producl. Wo nood lo Iovorago our iniliaI
succoss inlo a suslainabIo compolilivo advanlago.
The Story of DeII
1
In 1983, MiclaoI DoII, an 18 yoar oId froslman al llo Univorsily of Toxas al Auslin, sponl lis
ovonings and vooIonds pro-formalling lard disIs for IBM-compalibIo IC upgrados. A yoar Ialor, lo
1
Somo parls of llis soclion lavo boon dravn and adaplod from HBS caso No. 596-058, "DoII Compulor
Corporalion.
598-116 DeII OnIine
2
droppod oul of coIIogo lo allond lo lis burgooning businoss, vlicl lad grovn from nolling lo $6
miIIion in 1985 by simpIy upgrading IBM compalibIos for IocaI aroa businossos. In 1985, DoII sliflod
lis company's focus lo assombIing ils ovn brand of ICs and llo businoss grov dramalicaIIy, vill $70
miIIion in saIos al llo ond of 1985. By 1990, saIos lad grovn ovon furllor lo ovor $500 miIIion and
vill il DoIIs capabiIilios as a nalionaI suppIior lo Iorluno 500 companios. Tlo company nov lad a
broad producl Iino of dosIlop and porlabIo compulors basod on llo mosl roconl InloI procossors and
lad oarnod a slrong ropulalion for ils producls and sorvicos.
DoIIs succoss conlinuod llrougl 1992, unliI in 1993 il facod an oporaling Ioss for llo firsl limo
in ils lislory, dospilo a 40 incroaso in saIos. (Soo for DoIIs financiaI porformanco.) Tlo
probIoms, DoII quicIIy discovorod, slommod in parl from ils allompls lo soII ils producls llrougl
rolaiI clannoIs, sucl as CompUSA, SlapIos, and Sams CIubs in llo U.S. Moroovor, quaIily probIoms
vill ils Iaplops lad oxacorbalod DoIIs financiaI voos. WliIo somo pundils voro quoslioning DoIIs
fuluro, llo company aclod docisivoIy, oxiling llo rolaiI clannoI and rosoIving lo ro-onlor llo Iaplop
marIol onIy vlon llal producls quaIily malclod or oxcoodod llo quaIily of llo DoII dosIlop. By
1997, llo Ialiludo, DoIIs Iaplop, lad von magazinos Torluro Tosl lvico in llroo yoars
in addilion lo vinning --- - InduslriaI Dosign IxcoIIonco Avard.
DoIIs producl Iino ovoIvod vill llo IC marIol. In 1997, DoII manufaclurod lvo lypos of
dosIlop sysloms: llo Dimonsion Iino llal offorod ligl-ond loclnoIogy al vaIuo pricos, and llo
OpliIIox Iino foaluring liglIy-roIiabIo nolvorI roady sysloms dosignod for corporalo and
inslilulionaI cuslomors. SimiIarIy vill nolobooIs (Iaplops), llo Inspiron Iino offorod slalo of llo arl
loclnoIogy al aggrossivo pricos, vliIo llo Ialiludo Iino offorod roIiabIo nolobooIs dosignod for llo
offico nolvorI, oquippod vill dopondabIo nolvorI connoclivily. In addilion lo ils dosIlop and
Iaplop producls, DoII inlroducod ils IC/IAN (sorvor) producl llo IovorIdgo in 1996 and
vorIslalions in 1997.
By 1996, DoII saIos roaclod $7.8 biIIion vill an oporaling incomo of moro llan $710 miIIion.
DoII conlinuod offoring ils cuslomors ligl quaIily producls, vaIuo addod sorvicos, and roducod cosls
of ovnorslip. VaIuo addod sorvicos incIudod: DoIIIIus llal onabIod DoII lo inslaII commorciaI and
propriolary soflvaro and poriploraIs lo cuslomors spocificalions, DoIIWaro, a ono slop slopping
sorvico of llousands of lardvaro and soflvaro producls (DoII mainlainod no invonlory, ordors voro
pIacod oIoclronicaIIy for immodialo slipmonl lo affiIialod varolousos), and DoII Assol Managomonl
vloro DoII loIpod cuslomors vill Ioasing pacIagos. To Iovor llo cosls of ovnorslip, DoII aIso
vorIod vill ils cuslomors on propor soflvaro managomonl praclicos, offorod voIumo Iiconso
programs, and officionl inslaIIalion sorvicos.
Tlrougloul ils romarIabIo lislory, noarIy aII of DoIIs saIos voro lo Iargo corporalo accounls,
modium and smaII businossos, fodoraI and slalo govornmonls, and oducalionaI inslilulions. "Homo
consumors voro onIy a smaII proporlion of ils saIos. AImosl univorsaIIy, cuslomors and anaIysls aIiIo
allribulod DoIIs ropulalion and succoss lo ils uniquo and dislinclivo "DoII Dirocl ModoI.
The DeII Direct ModeI
Tlo DoII Dirocl ModoI vas a vory officionl "mado-lo-ordor ligl voIocily, Iov cosl
dislribulion syslom claraclorizod by dirocl cuslomor roIalionslips, buiId-lo-ordor manufacluring, and
producls and sorvicos largolod al spocific marIol sogmonls. By and Iargo using prinl modia, DoIIs
marIoling communicalion ($150 miIIion budgol in 1997) allraclod llo allonlion of ils cuslomors lo ils
Dirocl modoI and ils inloronl advanlagos. Ovor limo, DoII vas abIo lo accuraloIy forocasl domand
basod on marIoling communicalion offorls. Ior oxampIo, DoII's consumor group vas abIo lo prodicl
rosponso ralos from novspapor ads, calaIoguo offors, olc. Basod on ils modoI forocasls, DoII vas llon
abIo lo accuraloIy adjusl saIos slaffing and produclion IovoIs lo mool domand.
DeII OnIine 598-116
3
DoII sorvicod llo Norll Amorican marIol from ils lvo pIanls in Auslin, Toxas. A nov slalo of
llo arl pIanl llal oponod in 1997 manufaclurod DoIIs OpliIIox sysloms, vliIo DoIIs originaI pIanl,
fondIy roforrod lo as BraIor 12, conlinuod lo manufacluro DoIIs Dimonsion sysloms llal voro
largolod al llo individuaI usor, DoII Ialiludo nolobooIs, and DoIIs IovorIdgo nolvorI sorvors. Tlo
nov faciIily oporalod vill jusl-in-limo maloriaIs, a conlinuous manufacluring fIov, and dirocl
slipmonl capabiIily llal incroasod produclivily and onsurod consislonl, limoIy ordor doIivory and
ligl producl roIiabiIily. Will llo lransfor of llo OpliIIox capacily, llo oId pIanl, vlicl lad grovn in
a laplazard faslion lo accommodalo ovor incroasing capacily noods, vas boing rodosignod aIong
many of llo samo principIos.
Onco DoII rocoivod an ordor al ils faclory, llo configuralion dolaiIs voro sonl lo
manufacluring, vloro llo ordor vas oIoclronicaIIy broIon dovn inlo a Iisl of parls roquirod lo buiId
llo compulor. Wlon llo spocificalion slool vas gonoralod, an oIoclronic bar codo IinIod llo syslom
bacI lo ils originaI ordor numbor. If llo cuslomor caIIod lo clocI on llo doIivory slalus, using llo
ordor numbor DoII couId loII llo cuslomor oxaclIy vloro llo IC vas in llo assombIy procoss and
vlon llo syslom vouId bo slippod. If llo cuslomor lad a sorvico issuo aflor rocoipl of llo syslom,
lloy couId rofor lo llo numbor on llo bar codo and llo sorvico loclnician couId IooI up llo oxacl
configuralion of llo syslom.
Aflor llo parls spoc slool vas gonoralod llo assombIy of llo compulor bogan. Iirsl llo
mollorboard vas configurod vill llo ordorod micro-procossor and llo roquirod amounl of RAM.
Tlon llo ollor oplionaI parls (disI drivos, CD ROMs, olc.) voro assombIod inlo a bin, vill vorIors
puIIing llo noodod parls from slocI. Tlo bin vas forvardod vill llo mollorboard lo a fivo-porson
coII for llo inslaIIalion of lloso ollor parls, viring lo llo mollorboard, caso assombIy, and quaIily
losling. Tlo produclion coIIs voro oquippod vill compulors llal providod inslanl, dolaiIod accoss lo
informalion rogarding parl configuralions and solup. DoII found llal llo ligl-voIumo coII
produclion Iinos improvod llo pIanls capacily and aIso moro oasiIy inlogralod DoIIIIus program
compononls aIIoving for ovon groalor cuslomizalion for cuslomors. Tlo coII-basod produclion in llo
nov pIanl vas significanlIy moro officionl llan llo oId pIanl vlicl lad oporalod as a lradilionaI
assombIy Iino. Ior oxampIo, lloro vas a roducod nood for quaIily clocIing al sovoraI poinls in llo
Iino as llo mombors of a coII vorIod as a loam lo configuro llo syslom and losl il boforo il Iofl llo
assombIy aroa.
Aflor aII llo oplions lad boon inslaIIod in llo manufacluring coII por llo spoc slool, llo
syslom vas sonl lo llo soflvaro Ioading zono, vloro llo approprialo soflvaro, incIuding oporaling
syslom soflvaro, appIicalion soflvaro, and diagnoslic soflvaro, voro Ioadod inlo llo lard disI of llo
syslom. Aflor aII llo soflvaro vas Ioadod, llo syslom vas sonl lo a "burn-in aroa vloro il vas
povorod and loslod for four lo oigll lours boforo boing pacIod inlo a box and sonl lo llo pacIaging
aroa. Tloro, llo compIolod syslom vas boxod aIong vill poriploraIs sucl as a Ioyboard, mouso,
mouso pad, and llo manuaIs and fIoppy disIs for aII llo inslaIIod soflvaro.
Dospilo oarning somo of llo induslrys liglosl quaIily avards in llo IC induslry, DoII vas
conslanlIy slriving lo improvo ils producls. Ior oxampIo, roconlIy "MiclaoI DoII bocamo obsossod
vill finding a vay lo roduco lis maclinos faiIuro ralo.
2
Ho boIiovod llo Ioy vas lo roduco llo
numbor of limos lloro vas luman inloraclion vill llo lard drivo during assombIy and insislod llal
llo numbor of "louclos bo significanlIy roducod from llo oxisling IovoIs of 30 por drivo. Wlon llo
produclion Iinos voro ro-configurod, llo numbor of louclos foII lo Ioss llan 15 and soon aflor llo ralo
of rojoclod lard drivos foII 40, and llo ovoraII faiIuro ralo for DoII ICs droppod 20.
Tlo DoII procoss bocamo a modoI of officioncy for llo induslry. Tlo onliro procoss from ordor
rocoipl lo producl slipping roquirod onIy aboul 36 lours. Incoming parls voro puIIod llrougl llo
2
"DoII Turns llo IC WorId Insido Oul, Soplombor 8, 1997.
598-116 DeII OnIine
4
syslom and ordorod on a jusl-in-limo basis, vill DoIIs dirocl modoI oporaling on 13 days of
invonlory, vorsus llo 75 lo 100 days in llo lypicaI indirocl modoI. Tlis vas an improvomonl ovor
DoIIs prior slandard of 30 days of compononl invonlory, vill suppIiors carrying a buffor slocI of 45
lo 60 days. Indood, vlon llo pIanl vas dosignod, an oxlonsivo aroa lad boon aIIocalod for parls
slorago, bul six monlls aflor llo pIanl oponod, DoII pIannod lo convorl mucl of llo aroa lo
produclion spaco, adding an addilionaI Iino lo llo four aIroady in oporalion. DoIIs abiIily lo oporalo
on a jusl-in-limo basis vas faciIilalod by ils suppIiors, vlo varolousod llo buII of lloir compononls
villin 15 minulos from llo DoII faclory. DoII lad boon abIo lo roacl lloso agroomonls by roducing
llo numbor of suppIiors, buying from jusl 47 companios rallor llan llo 204 il lad purclasod from in
1992. An induslry obsorvor commonlod on llo advanlagos of DoIIs puII syslom,
WliIo maclinos from Compaq or IBM can Ianguisl on doaIor sloIvos for lvo
monlls, DoII doosnl slarl ordoring compononls and assombIing compulors unliI an
ordor is booIod. Tlal may sound IiIo no biggio, bul llo prico of IC parls can faII
rapidIy in jusl a fov monlls. By ordoring rigll boforo assombIy, DoII figuros lis
parls on avorago aro 60 days novor llan lloso in an IBM or Compaq maclinos soId
al llo samo limo. Tlal can lransIalo inlo a 6 profil advanlago in compononls
aIono.
3
Slipping vas conlraclod oul, vill muIlipIo slippors doIivoring llo sysloms anyvloro in
Norll or Soull Amorica. In 1997, in anollor procoss innovalion, DoII sloppod accopling doIivory of
monilors for ils IC ordors. Insload, vlon a syslom vas roady for slipping, DoII sonl an o-maiI
mossago lo a slippor. Tlo slippor puIIod llo approprialo monilor from suppIior slocIs and
scloduIod llo monilor's arrivaI lo llo cuslomor for llo samo dalo as llo IC. Tlo rosuIl vas aboul $30
savings in froigll cosls por dispIay.
Iosl slipmonl, if a cuslomor caIIod in vill a probIom, llo firsl IovoI of supporl vas providod
ovor llo loIoplono. DoII ompIoyod noarIy 1,300 loclnicaI supporl roprosonlalivos vlo couId bo
accossod by plono al any limo. Givon llo naluro of llo producl, llis vas vory offoclivo in laIing caro
of sorvico probIoms llal roquirod land-loIding cuslomors and vaIIing llom llrougl slandard
lroubIo-slooling procoduros, and indood soIvod llo probIom in nino oul of lon casos. If llo probIom
vas ono of dofoclivo parls, DoII lad llird parly mainlonanco agroomonls vill sorvico companios
(offico aulomalion vondors sucl as Xorox) vlo sonl loclnicians lo soIvo llo probIom, vill mosl
probIoms boing rosoIvod villin 24 lo 48 lours. MiclaoI DoII oxpIainod,
Wo firsl inlroducod llo concopl of buiId-lo-ordor in llo IC induslry. Wo
voro aIso llo firsl lo inlroduco on-silo sorvico. Wo Inov llal our corporalo
cuslomors and oxporioncod individuaI cuslomors lad noods llal voronl boing fiIIod
by llo lradilionaI rolaiI clannoI.
The DeII Customer
DoII broadIy sogmonlod ils cuslomors as oillor "lransaclionaI or "roIalionslip, vill aboul
40 boing roIalionslip, 30 boing lransaclionaI and llo rosl boing a bIond of boll. boIov
slovs DoIIs major cuslomor sogmonls. TransaclionaI cuslomors voro individuaIs or businossos vlo,
ovon if purclasing a Iargo voIumo of compulors, llougll of oacl purclaso individuaIIy. Ior llo
lransaclionaI cuslomor llo oconomics of llo purclaso vas llo Ioy variabIo. Tlo lransaclionaI
cuslomor usuaIIy bougll from a varioly of vondors ovor limo, aIvays IooIing for llo bosl IC for a
parlicuIar appIicalion focusing on spocific faclors sucl as porformanco, spocificalions, foaluros,
bundIos, roviovs, and avards. Tlo lransaclionaI cuslomor consuIlod informalion sourcos sucl as
roviovs, odiloriaIs, advorlising, as voII as vord of moull in llo buying procoss, roIying on provious
3
"WlirIvind on llo Wob," --- , ApriI 7, 1997.
DeII OnIine 598-116
5
brand oxporionco onIy as an indicalor. DoIIs businoss sysloms division (BSD) llal sorvod smaII
businossos, calaIoguo saIos (DCS) llal sorvod consumors, porlions of liglor oducalion and llo fodoraI
govornmonl voro oxampIos of lransaclionaI sogmonls. DoIIs main compolilors in llis sogmonl voro
companios sucl as Galovay 2000, and Micron IIoclronics, and llo rolaiI clannoI. Ono DoII oxoculivo
summarizod, "On llo lransaclionaI sido of llo businoss, you nood lo acquiro llo cuslomor ovory limo
lloy buy a syslom, llo onIy difforonco is llal lloyro mucl moro oducalod llo socond limo llan llo
firsl.
xxx DoIIs MarIol Sogmonlalion
Market Segment
Buying
Process
Ratio of
Outside Reps
to Inside
SaIes Reps
Enterprise (>18,000 employees) Relationship
1:1
Large corporate accounts (2,000-18,000 employees) Relationship
1.3:1
Preferred accounts (400-2,000 employees) Relationship
1:3
Business systems div. (2-400 employees) Transactional
all inside
Dell catalogue sales Transactional
all inside
Federal government Mixed
1:1.5
Education Mixed
1:2
State & local government Mixed
1:1
*The data in this table has been disguised
TradilionaIIy, DoII lad sloorod cIoar of llo nooplylo lransaclionaI cuslomor, ospociaIIy llo
individuaI consumor vlo londod lo pay Iovor pricos and, IacIing a loclnicaI usor-supporl group
found in llo Iargor businoss solling, londod lo lavo moro inlonsivo sorvico roquiromonls. Morlon
Topfor addod, "Consumors al rolaiI donl Inov vlal lloy aro IooIing for, ollor llan prico. Wo, on
llo ollor land, IiIo lo soII lo llo oducalod consumor. As a rosuIl, DoII londod lo marIol lovard llo
liglor ond of llo sogmonl llal allraclod a moro compulor-soplislicalod cuslomor.
"RoIalionslip cuslomors llougll of compulor purclasing as a muIli-dimonsionaI procoss,
rogardIoss of vlollor lloy voro purclasing 5 or 500 compulors. UnIiIo llo lransaclionaI cuslomor,
llo roIalionslip cuslomor vas Ioss prico sonsilivo (aIllougl llo cuslomor may buy al Iov prico
poinls) and londod lo focus on faclors sucl as roIiabiIily, vondor slrongll, and slandardizalion of
producls. RoIalionslip cuslomors gol lloir informalion from saIos poopIo, induslry anaIysls,
conforoncos, and lriaIs and losling. RoIalionslip accounls incIudod llo Inlorpriso, Iroforrod
Accounls, and fodoraI govornmonl conlracls sogmonls. DoIIs major compolilors in llo RoIalionslip
sogmonl voro Compaq, IBM, HI, and ollor Ioading brands llal soId lo llo cuslomors llrougl VARs
(vaIuo addod rosoIIors) and nalionaI rosoIIors. Ior oxampIo, Vanslar, a major rosoIIor of Compaqs
producl, vouId offor ils cuslomors a compIolo compuling soIulion, incIuding Compaq compulor
lardvaro, poriploraIs, inslaIIalion of slandard and propriolary soflvaro, and on-silo sorvico.
RoIalionslip cuslomors voro a Ioy compononl in DoII's succoss slory. WliIo fov Iargo
cuslomor signod oxcIusivo purclaso agroomonls vill a singIo vondor, DoII lad acliovod romarIabIo
ponolralion of llo roIalionslip cuslomor baso, vill a 25 ponolralion of llo Iorluno 500 companios,
10 ponolralion of llo noxl Iargosl 5,000 companios, and an 8 slaro of llo 15,000 companios vill
200-2,000 ompIoyoos. In llo modium and smaII businoss sogmonl vill noarIy a 5 ponolralion of llo
7 miIIion accounls, DoII lad mado improssivo gains in llo Iasl fov yoars. As a lardvaro
manufacluror, DoII vas al a compolilivo disadvanlago againsl VARs and nalionaI rosoIIors llal
offorod a fuII rango of lardvaro (boll ICs and poriploraIs) and soflvaro (off-llo-sloIf and
cuslomizod), DoII lad ovorcomo lloso slorlcomings in lvo vays. Iirsl, il rocognizod llal il noodod
598-116 DeII OnIine
6
lo bo moro llan a "puro" lardvaro vondor and dovoIopod ils ovn rango of vaIuo-addod sorvicos sucl
as DoIIIIus llal inslaIIod commorciaI and propriolary soflvaro and DoIIvaro, a ono-slop slopping
sorvico of a fuII rango of lardvaro and soflvaro producls. Moroovor, DoII lad conlraclod oul, bul
mainlainod accounlabiIily for, ils sorvico for Iargo accounls lo llird parly sorvico providors sucl as
DigilaI Iquipmonl Corporalion llal lad noarIy 20,000 fioId sorvico poopIo. Socond, DoII focusod on
llo oconomics of llo ovoraII accounl, judiciousIy appIying llo 10 lo 15 prico advanlago oarnod by ils
dirocl modoI lo boll vin nov accounls and doopon ponolralion of oxisling accounls.
TransaclionaI cuslomors voro givon llo oplion of paying for lloir purclaso using a crodil
card or boing clargod in fuII on doIivory. In llo caso of RoIalionslip buyors, paymonl vas usuaIIy
offoclod llrougl corporalo purclaso ordors, crodil cards, or Ioaso agroomonls, rosuIling in a
significanlIy Iongor paymonl cycIo. OvoraII, llo Iargor llo voIumo por accounl, llo liglor llo gross
margins for DoII in llo RoIalionslip sogmonl. Tlo abiIily lo gonoralo casl from ils ordors vas anollor
oxampIo of DoIIs procoss voIocily. IspociaIIy on llo lransaclion sido, DoII convorlod llo avorago saIo
lo casl in Ioss llan 24 lours by lapping crodil cards and oIoclronic paymonl. By comparison,
Compaq, vlicl soId primariIy llrougl doaIors, looI 35 days and Galovay, 16.4 days.
DeII SaIesforce
DoII organizod ils businoss inlo four rogions, llo Amoricas, Iuropo, }apan, and Asia, vill a
prosidonl villin oacl rogion rosponsibIo for aII oporalions. Iacl of llo four rogions, in addilion lo a
vorIdvido businoss dovoIopmonl group and ollor spociaIizod funclions sucl as IogaI and
onginooring, roporlod diroclIy lo llo Offico of llo Clairman. As soon in llo organizalion clarl
( ), roporling inlo llo rogions voro sonior vico prosidonls rosponsibIo for manufacluring,
individuaI businoss unils, and ollor funclions sucl as pubIic roIalions and financo. Willin llo
Amoricas, (vlicl roprosonlod 65 of DoII vorIdvido saIos), oacl of llo nino businoss sogmonls voro
groupod inlo broador doparlmonls llal roporlod lo llo group vico prosidonl. Iacl businoss sogmonl
rolainod ils ovn saIos, marIoling, oporalions (informalion sysloms, saIos ordor onlry, coIIoclions, olc.),
luman rosourcos, and IogaI doparlmonls.
Oulsido of llo Amoricas, llo organizalionaI slrucluro difforod sIigllIy. Ior oxampIo, Asia
and Iuropo lad a lradilionaI counlry managomonl slrucluro, vill llo counlry vico prosidonls
roporling inlo llo prosidonl for llo rogion. Willin llo rospoclivo counlrios, DoII lypicaIIy lad a
funclionaIIy basod organizalion, aIllougl il vas incroasingIy moving lovard llo businoss unil
approacl usod in llo Amoricas. Ior oxampIo, in Iranco, rallor llan laving nino businoss unil
organizalions, lloro vas a lransaclionaI sogmonl and a roIalionslip sogmonl.
In llo Amoricas, DoII soId ils producls using a saIos organizalion llal rosidod villin llo
businoss unils. RoIalionslip sogmonls ompIoyod loams of oulsido and insido saIos rops, vill llo
oxcoplion boing llo consumor and smaII businoss dovoIopmonl sogmonls vlicl usod oxcIusivoIy
insido saIos rops. In 1994, DoII lad aboul 300 fioId-basod saIos rops and a simiIar numbor of insido
loIoplono rops. By 1997, llal figuro lad grovn lo ovor 2,000 rops, vill aboul 40 of saIos rops
assignod lo llo roIalionslip sogmonls, 25 lo llo lransaclionaI sogmonls, and 35 assignod lo lloso
sogmonls llal voro a bIond of boll roIalionslip and lransaclionaI cuslomors. Tlo oulsido rop, Inovn
as a fioId Accounl Ixoculivo, vas dodicalod lo cuslomors in a rogion and vas rosponsibIo for
undorslanding llo cuslomors informalion loclnoIogy onvironmonls and sorvico noods and soIIing
llom cuslomizod producl and sorvico soIulions. AddilionaIIy, llo 1,300-porson loclnicaI supporl
group vas dividod inlo llroo groups (consumor/smaII businoss, pubIic soclor, and
onlorpriso/Iargo/proforrod) and roporlod diroclIy lo llo group vico prosidonl.
Tlo insido saIos rops voro pairod vill fioId rops and dodicalod lo common RoIalionslip
accounls, vliIo insido rops in llo Transaclions sogmonl aclod indopondonlIy. Tloy voro rosponsibIo
for ordor procossing and landIing inbound saIos caIIs. Wlon a cuslomor caIIod in, llo loIoplono saIos
rop vas abIo lo quicIIy caII up lloir saIos lislory onIino and guido llo cuslomor accordingIy,
DeII OnIine 598-116
7
accossing oIigibiIily for discounls or corporalo-mandalod producl configuralions llal llo caIIors
migll nol lavo boon avaro of. Tlo insido rops voro aIso rosponsibIo for llo "up-soII al llo limo of
purclasosoIIing llo cuslomor a liglor-ond syslom vill a riclor mix of soflvaro and poriploraIs.
Insido saIos rops rocoivod variabIo componsalion basod on llo gross margin of llo goods lloy soId,
vill lypicaI quolas avoraging $4-6 miIIion in rovonuo in llo lransaclion sogmonls.
Tlo roIo of llo saIos rop clangod significanlIy doponding on llo lypo of cuslomor boing
sorvod. An insido saIos rop, in oillor llo smaII businoss or consumor sogmonl, vas an aclivo soIIing
agonl significanlIy infIuoncing llo buying docision as llo cuslomor oflon IooIod lo llo saIos rop for
loclnicaI advico. Ior oxampIo, a saIos rops rocommondalion for a faslor CD ROM or llo incIusion of
a zip drivo vas oflon accoplod by llo cuslomor, incroasing DoIIs margin on llo syslom. By conlrasl,
in llo caso of an onlorpriso cuslomor, llo purclasing companys informalion sorvicos porsonnoI lad
pro-dolorminod llo spocificalions of llo sysloms lloir ompIoyoos voro pormillod lo ordor. Moroovor,
allompling lo acliovo lomogonoily in lloir inslaIIalions, lloso cuslomors aclivoIy discouragod any
dovialions from llo proscribod slandards. As a rosuIl, llo insido saIos rops funclion vas moro
focusod on corrocl ordor onlry and undorslanding llo cuslomors roquiromonl on producl and
doIivory.
SimiIarIy lloro vas a difforonco in llo roIos and rosponsibiIilios of llo oulsido saIos rops
doponding on llo sizo of llo roIalionslip cuslomor lloy sorvod. Ior llo Inlorpriso and Iargo
accounls, llo oulsido saIos rop vas llo singIo poinl of conlacl for llo cuslomor. Tlo saIos rop vas
rosponsibIo for acquiring llo accounl and aclivoIy mainlaining ildovoIoping spocificalions,
foIIoving up on probIoms, olc. By comparison, llo oulsido saIos rop in llo proforrod accounl sogmonl
vlo landIod as many as 10-15 accounls, vas rosponsibIo for acquiring llo accounl and llon
moniloring ils salisfaclion and grovll al roguIar inlorvaIs, Ioaving llo primary conlacl vill llo
cuslomor lo llo insido saIos rop. Ono DoII oxoculivo doscribod llo roIo as "solling up llo accounl and
llon golling oul of llo vay.
PC Distribution ChanneIs
In llo Ialo 1990s, IC dislribulion clannoIs romainod fragmonlod, vill major manufaclurors
using a varioly of clannoIs lo bring lloir producls lo marIol. Dospilo llo proIiforalion of clannoIs, by
llo mid 1990s, four fundamonlaI moans of dislribulion lad ovoIvod for llo dislribulion of ICs:
dirocl, consumor rolaiI, indirocl businoss saIos llrougl VARs, and indirocl businoss llrougl nalionaI
rosoIIors. ( providos an ovorviov of llo llroo indirocl clannoIs). DoII vas llo onIy major
manufacluror lo focus soIoIy on llo dirocl clannoI. AImosl aII ollor manufaclurors usod ono or moro
of llo llroo ollor clannoIs lo dislribulo lloir producls, ignoring llo dirocl clannoI. Ior oxampIo, in
1996, Compaq soId aImosl oxcIusivoIy llrougl indirocl dislribulion clannoIs vlicl incIudod lop-lior
or maslor dislribulors, rogionaI dislribulors, rosoIIors, and rolaiIors. In addilion lo lloso four major
dislribulion mollods, lloro voro varialions incIuding Galovays roconl allompl lo dovoIop dirocl
rolaiI oulIols in ligl voIumo Iocalions sucl as slopping maIIs. Tlo llroo non-dirocl clannoIs aro
doscribod boIov.
598-116 DeII OnIine
8
xxxMajor IC Dislribulion ClannoIs (IxcIuding Dirocl ClannoIs)
RetaiI Tlo rolaiI marIol vas dominalod by nalionaI clains sucl as Circuil Cily, Bosl Buy, and
CompUSA. Iroducl fIovod diroclIy from llo manufacluror lo llo clain rolaiIor for saIos lo
consumors and smaII businossos. Tlis clannoI usuaIIy soId slandard producl offorings primariIy lo
individuaI consumors and smaII businossos. Aboul 30 of llo U.S. marIol vas soId llrougl llo
rolaiI clannoI.
Indirect through VARs In llis clannoI, producl fIovod from llo manufacluror lo maslor
dislribulors lo indopondonl vaIuo-addod rosoIIors (VARs). In 1996, lloro voro llroo maslor
dislribulors in llo U.S.Ingram Micro (saIos of $12.0 biIIion), Tocl Dala (saIos of $4.6 biIIion), and
MorisoI (saIos of $5.5 biIIion), carrying approximaloIy 100,000 iloms and diroclIy or indiroclIy
suppIying llo fuII rango of aII lardvaro, soflvaro, and poriploraIs for llo IC induslry. Tlo maslor
dislribulor omplasizod producl dislribulion, Ioaving syslom inlogralion or vaIuo-addod sysloms lo
llo VARs. Ior ils parl, llo VARs lad dirocl roIalionslips vill moslIy businoss cuslomors, providing
syslom inlogralion, sorvico, spociaIizod soflvaro, olc. ApproximaloIy 15 of llo U.S. marIol vas
dislribulod in llis mannor.
Indirect through nationaI reseIIers Tlo ollor significanl dislribulion fIov for businoss ICs vas
llrougl nalionaI rosoIIors sucl as Inlox Informalion Sysloms, Vanslar (saIos of $2.2 biIIion),
CompuCom Sysloms (saIos of $2.0 biIIion), and MicroAgo (saIos of $3.5 biIIion), vlo purclasod ICs
from llo manufacluror and dislribulod llom llrougl lloir ovn vloIIy ovnod nolvorI of rolaiI sloro
fronls and saIos & sorvico organizalions. SimiIar lo llo VAR, llo nalionaI rosoIIors slrongll vas ils
abiIily lo cuslomizo sysloms lo mool individuaI cuslomor noods. Ior oxampIo, a nalionaI rosoIIor
rocoiving an ordor for a 100 sysloms vill sound cards and 56.6 modoms, ordorod llo sysloms from
llo OIM, inslaIIod llo nocossary upgrados, roassombIod llo syslom, loslod il, and sonl il lo llo ond
usor. Tlis clannoI accounlod for approximaloIy 33 of llo U.S. marIol.
Compolilion in llo IC induslry vas inlonso. Will incroasod marIol maluralion, vondor
margins lad faIIon from 35-40 in llo oarIy 1990s lo cIoso lo 20 in 1996, and voro forocasl al 15
for llo fuluro. In 1992, llo lop lon vondors accounlod for approximaloIy laIf of llo IC marIol. By
1994, consoIidalion from incroasod prico compolilion Iofl llo lop lon vill a 65 slaro. In llo $85
biIIion U.S. marIol in 1997, Compaq vas llo Ioador vill aboul 18 slaro, DoII vas socond vill
DeII OnIine 598-116
9
aboul 10, foIIovod by IacIard BoII-NIC and IBM liod al 8-9. HovIoll-IacIard and Galovay oacl
lad aboul 6 slaro. Vondors facod "foasl or famino domand cycIos llal voro incroasingIy difficuIl
lo prodicl. Givon llo cycIicaI naluro of llo induslry, inaccuralo projoclions Iod lo oillor producl gIuls
and obsoIolo invonlory in dislribulion clannoIs or producl slorlagos. Tlis vas oxcoplionaIIy risIy in
an induslry vloro manufaclurors lradilionaIIy guaranlood lloir doaIor nolvorIs againsl prico
clangos. Ior oxampIo, if llo cosl of clips or compononls foII, a manufacluror roimbursod ils doaIors
for llo prico roduclions on sysloms aIroady in llo clannoI and bougll bacI any unsoId invonlory.
Will llo succoss of ils DoII dirocl modoI and ils roconl Inlornol appIicalion, and docIining
induslry margins, many vondors voro moving lovard a buiId lo ordor modoI. (Soo for a
briof doscriplion of ollor induslry lronds.) Ono induslry obsorvor commonlod,
Tlo runavay succoss of DoII Compulors dirocl saIos modoI and llo lrond
lovard Inlornol ordoring aro forcing many of llo vorIds major IC companios lo
rollinI lov lloy do businoss. . . Tlo dislribulion and manufacluring modoIs llal
mosl lavo favorod sinco llo induslrys incoplion in llo oarIy 1980sa combinalion of
inlornaIIy buiIl producls and oulsido dislribulors, doaIors, rosoIIors, and rolaiIorsis
boing unpicIod. In ils pIacoa fIuid modoI undor vlicl manufacluring is sproad
across oulsido conlraclors, dislribulors/doaIors, and llo company ilsoIf, vill moro
omplasis pIacod on soIIing diroclIy lo llo cuslomor.
4
In }uIy of 1997, aflor faiIing in lvo allompls lo purclaso Galovay (ono of DoIIs slrongosl
dirocl compolilors), Compaq announcod ils nov buiId-lo-ordor manufacluring procoss, and
oslabIislod dirocl saIos loams and loIoplono conlors llal vouId slip Compaq compulors dirocl lo llo
cuslomor. Hovovor, by oarIy Soplombor, Compaqs syslom vas aIroady sloving slrain. Ono
obsorvor nolod,
Tlo ora of mass cuslomizalion is fasl arriving in llo IC induslry. Ivoryono
in llo suppIy clain from manufacluror lo dislribulor is rodofining lloir rospoclivo
roIos, and llo finaI assombIy of sysloms is ono roIo cIoarIy gravilaling lovards llo
clannoI.
5
Ior ils parl, ollor induslry Ioadors sucl as IBM and HI voro lransforring a Iargo proporlion
of lloir IC assombIy lo a soIocl group of dislribulors and doaIors. In ils Aullorizod AssombIy
Irogram (AAI), IBM bogan slipping "baro bonos sysloms inlo llo clannoI for configuralion lo ordor
assombIy, loping lo bocomo moro rosponsivo lo domand, lo bollor manago invonlory, lo Iovor llo
risI of producl obsoIosconco, and lo roduco llo manufacluring cosls of ils producls. To bo parl of llo
AAI, IBM roquirod llal llo dislribulors and doaIors bo corlifiod, uso IBM assombIy and losling
procoduros, and uso onIy IBM originaI parls. IarIy rosuIls suggoslod llal llo AAI program rosuIlod
in liglor producl quaIilyllo syslom vas assombIod aII al onco, rallor llan boing "louclod by
VARs adding compononls as noodod. SimiIar lo llo DoII oxporionco, IBM found llal llo fovor limos
llo box vas oponod llo Ioss IiIoIy llo dofocls vouId croop in.
Many vondors rocognizod llo risIs inloronl in going dirocl lo llo cuslomor, ospociaIIy as
many boIiovod llal llo dirocl modoI couId onIy roacl 30 of IC cuslomors.
6
BiII Ramsoy, VI of
manufacluring slralogy and loclnoIogy for Compaq, romarIod,
By no moans is Compaq abandoning llo clannoI, bul if il is lo figll bacI
againsl DoII and ollor dirocl IC vondors il musl lavo llo samo advanlagos and
4
"Dirocl Aclion," --- }uno 1, 1997.
5
"Dobaling llo Moaning of AssombIy - Wlon Torms BroaI Dovn, " - Augusl 25, 1996, p. B15.
6
"Dirocl Aclion," --- }uno 1, 1997.
598-116 DeII OnIine
10
mirror lloir businoss praclicos. Il is a caIcuIalod risI bocauso vo musl do so villoul
upsolling llo clannoI, bocauso llo DoII modoI for aII ils officioncios can onIy covor so
mucl of llo marIol. You nood llo clannoI if you vanl lo gol lo llom aII.
7
DeII Goes OnIine
Tlo mid 1990s sav a dramalic Ioap forvard in llo uso and funclionaIily of llo Inlornol. Onco
llo domain of acadomic rosoarclors claraclorizod by cumborsomo codo, llo "Nol bocamo
mainslroam vlon usor-friondIy brovsors mado il possibIo lo soarcl llo Inlornol for informalion and
sond and rocoivo maiI oIoclronicaIIy. Tlo pionooring vorI by Nolscapo Communicalions in llo oarIy
1990s lad dovoloos "surfing llo Nol in incroasing numbors and allracling llo allonlion of boll llo IC
induslry and llo businoss communily ovoraII. In May 1995, BiII Galos, CIO of Microsofl
Corporalion, ponnod a momo, "Tlo Inlornol TidaI Wavo, in vlicl lo slalod llal llo Nol vas llo
mosl imporlanl singIo dovoIopmonl sinco llo IC.
8
Will llal lo announcod a major drivo lo bring
Microsofl inlo llo roaIm of llo Wob.
SimiIarIy, MiclaoI DoII lad bocomo dravn lo llo "buzz aboul llo Inlornol, onvisioning il as
llo uIlimalo oxlonsion of llo DoII dirocl modoI. Indood, by llo oarIy 1990s DoII lad bogun
oxporimonling vill llo Inlornol in rosponso lo cuslomor domand, doIivoring onIino loclnicaI supporl
and ordor slalus informalion. As lis vision for llo Inlornol grov, MiclaoI DoII oslabIislod a smaII
loam of aboul nino poopIo lo oxpIoro using llo Inlornol as a moans of communicaling vill cuslomors,
doIivoring informalion, and soIIing ils producls. Tlis loam vas Iod by Scoll IcIorl, a Harvard MBA,
vlo al llal limo vas Ixoculivo Assislanl lo llo Clairman, vorIing on spociaI projocls roporling
diroclIy lo MiclaoI DoII.
As llo loam invosligalod llo Inlornol lloy bocamo incroasingIy convincod llal il vas a viabIo
clannoI for DoIIs producls. In 1996, lloro voro 20 miIIion usors vorIdvido, vill llo numbor of usors
oxpoclod lo doubIo ovory yoar. Moroovor, DoIIs Ioy cuslomors, businoss usors, voro major drivors of
llo Inlornol, vill 82 of 500 companios providing lloir ompIoyoos vill Inlornol accoss, and
64 of Iorluno 500 companios laving dovoIopod Inlranols (inlornaI communicalions nolvorIs). Tlo
U.S. marIol vas an oarIy adoplor of Inlornol capabiIilios, vill 65 of U.S. businossos vill 50 or moro
ompIoyoos oillor pIanning lo uso llo Inlornol or aIroady onIino, comparod lo 45 of Gorman
companios and 28 of Ironcl companios. AImosl univorsaIIy, induslry obsorvors prodiclod a surgo
in oIoclronic commorco drivon by llo Inlornol. By llo yoar 2000, ono induslry obsorvor forocaslod $67
biIIion por yoar in businoss-lo-businoss Inlornol commorco.
9
Anollor prodiclion vas llal 46 miIIion
Amoricans vouId bo purclasing goods and sorvicos oIoclronicaIIy by llo yoar 2000.
10
Many al DoII voro oxcilod by llo onIino prospocls, boIioving llal llo Nol vas a naluraI
oxlonsion of DoIIs dirocl businoss modoI"llo uIlimalo dirocl modium for llo noxl gonoralion of llo
dirocl modoI llal DoII lad pionoorod. Moroovor, induslry anaIysls suggoslod llal fov IC vondors
voro as voII posilionod as DoII lo laIo advanlago of llo Inlornol opporlunily unoncumborod by an
oxisling dislribulion clannoI, DoII couId go dirocl lo llo cuslomor as usuaI, bul ollors lad lo uso a
difforonl modium lo go dirocl. Ono anaIysl romarIod, "DoII las boon posilionod for somolling IiIo
7
Ibid.
8
--- , }uIy 15, 1995.
9
"Suilod, Surfing and Slopping, -, }anuary 25, 1997, p. 59.
10
"In Soarcl of llo Iorfocl MarIol, -, Survoy of IIoclronic Commorco, May 10, 1997.
DeII OnIine 598-116
11
llis sinco ils boginning. Tloy can migralo vlal lloy do in llo roaI vorId lo llo Wob oasiIy villoul
upsolling any of lloso oxisling saIos clannoIs.
11
In Ialo 1995, llo loam bogan dosigning an onIino rolaiI sloro and loclnicaI supporl volicIo for
DoIIs producls. Aflor inlorvioving polonliaI vondors lo buiId an onIino ordoring syslom, DoII found
llal lloro voro fov pIayors oul lloro vill llo loclnoIogy and lurnod lo in-louso programmors lo
buiId a program, uIlimaloIy caIIod llo configuralor, lo supporl llo dosign and ordoring of a DoII
syslom onIino. By llo ond of llo firsl quarlor of 1996, llo onIino syslom bogan lo laIo slapo.
TransactionaI Business OnIine
In Ialo }uIy 1996, DoII bogan conducling businoss llrougl ils Inlornol silo. AImosl
immodialoIy DoII bogan soIIing $1 miIIion por vooI llrougl llo Wob. Onco cuslomors Ioggod onlo
llo silo and configurod llo syslom llal bosl suilod lloir noods, lloy lad llo oplion of purclasing llo
syslom using a crodil card. Aflor ordoring llo syslom, llo cuslomor couId uso doII.com lo lracI llo
ordors slalus from llo limo il vas onlorod in llo syslom, llrougl lo llo manufacluring procoss, and
llon lo slipping. Onco slippod, doII.com vas IinIod lo slipping parlnors vlo assignod llo syslom
an air biII numbor llal lracIod doIivory of llo syslom. In addilion lo llo purclaso funclionaIily, llo
silo conlainod compIolo sorvico and supporl dala, vill 35,000 pagos of lroubIoslooling informalion
llo samo informalion usod by DoIIs loclnicaI roprosonlalivos lo soIvo lardvaro and soflvaro
probIoms ovor llo plono. ( providos liglIiglls of llo DoII silo.) DoII sorvod ils onIino
cuslomors vill 12 saIos rops and lvo ordor procossors dodicalod lo procossing Inlornol ordors.
Onco llo cuslomor sonl llo ordor lo DoII ovor llo Inlornol, il vas rocoivod by an ordor
procossor vlo cIassifiod llo ordor inlo a marIol sogmonl and roulod il lo llal sogmonls o-maiI
(oIoclronic maiI) box. Tloro, a mombor of llo ordor procossing and saIos rop loam quaIifiod llo o-maiI
ordor. If llo ordor vas compIolo il vas Ioyod inlo llo saIos ordor syslom and roulod lo llo faclory for
syslom assombIy in oxaclIy llo samo procoss as any ollor ordor coming inlo llo DoII syslom. If llo
ordor vas incompIolo, llo saIos rop caIIod llo cuslomor for llo missing informalion and onco llo
ordor vas compIolo, onlorod il. ApproximaloIy 20 of llo ordors llal DoII rocoivod from ils onIino
rolaiI sloro voro compIolo. Aboul ono-llird of incompIolo ordors voro allribulabIo lo cuslomor
concorns ovor socurily and voro, lloroforo, IacIing crodil card informalion.
AddilionaIIy, if cuslomors lad a loclnicaI supporl quoslion lloy couId roforonco DoIIs
loclnicaI supporl manuaI, llo samo ono usod by DoIIs loIoplono-basod sorvico rops. Iurllor,
cuslomors couId dovnIoad upgradod informalion, sucl as nov prinlor drivors, llrougl llo vobsilo.
Six Months$1 MiIIion/Day in Revenues
By Docombor 1996, moro llan 150,000 cuslomors voro visiling llo vobsilo oacl vooI,
gonoraling saIos of approximaloIy $1 miIIion por day. According lo Scoll IcIorl, "I llinI ovoryono
sonsod llal llo Inlornol couId bo a big vin for us, bul I donl llinI anyono roaIIy onvisionod llal il
vouId bo llis big llis soon.
By mid-Docombor, llo onIino loam vas anxious lo Inov moro aboul lloso cuslomors, so DoII
commissionod a marIol rosoarcl sludy lo undorsland cuslomors porcoplions and purclaso and
usago bolaviors in ordor lo dovoIop a profiIo of ils Inlornol cuslomors. In Docombor 1996, DoII
conduclod 104 loIoplono inlorviovs among cuslomors from llo Businoss SoIIing Division (smaII
11
"DoII TaiIors Wob for Businoss, , }uno 9, 1997, p. 19.
598-116 DeII OnIine
12
businoss) and llo DoII CalaIoguo SaIos (individuaI consumor) division vlo lad purclasod a DoII
compulor and usod llo DoII vobsilo lo oblain producl and pricing informalion. In llo survoy, aboul
laIf llo parlicipanls voro businoss usors and llo ollor laIf rosidonco usors. NoarIy 44 of cuslomors
purclasod diroclIy llrougl llo vobsilo, 37 slarlod vill llo Wob bul ondod up caIIing a saIos rop lo
purclaso llo compulor, and llo romaining 19 usod llo vobsilo diroclIy lo purclaso bul lad aIso
conlaclod a saIos roprosonlalivo for supporling informalion.
Businoss cuslomors voro moro famiIiar vill DoII, vill 45 of businoss cuslomors laving
purclasod from DoII boforo, vliIo onIy 19 of rosidonliaI cuslomors lad proviousIy purclasod from
DoII. Mirroring DoIIs producl mix, boll businoss and rosidonliaI cuslomors voro moro IiIoIy lo
purclaso a dosIlop IC, vill porlabIo ICs boing mosl popuIar among businoss cuslomors.
AIllougl rosidonliaI cuslomors voro moro IiIoIy firsl-limo DoII cuslomors, onIy 12 voro
acluaI firsl-limo buyors, vill 32 purclasing lloir nov IC as an addilionaI IC and 56 purclasing
il as a ropIacomonl IC. Mosl rosidonliaI cuslomors indicalod llal llo primary inlondod purposo of
llo IC vas for porsonaI uso (34), businoss uso al lomo (34), onlorlainmonl uso (26), or
oducalionaI uso (22). RosidonliaI usors voro froquonl Inlornol usors, vill 63 indicaling llal lloy
sponl ono lour por vooI or moro on llo Wob for profossionaI/businoss purposos and 60 indicaling
llal lloy sponl in oxcoss of fivo lours por vooI on llo Inlornol for porsonaI uso.
DoII found vory ligl IovoIs of salisfaclion among ils cuslomors vill aImosl aII cuslomors
slaling llal lloy voro salisfiod or vory salisfiod vill lloir purclaso. As soon in boIov, vliIo
IovoIs of cuslomor salisfaclion voro ligl, mosl cuslomors indicalod llal lloy vouId lavo purclasod a
DoII compulor ovon villoul laving accoss lo a vobsilo. Bul llo samo consumors aIso indicalod llal
lloy inlondod lo uso a vobsilo for lloir noxl purclaso occasion.
Cuslomor roaclion lo DoII.com
Business
n=51
ResidentiaI
n=53
DirectIy
through Web
n=46
CaIIed Rep to
Purchase
n=38
BothWeb
Purchase
and CaIIs
n=20
Likelihood of purchase without
website 67% 74% 74% 63% 75%
Intent to use website for next
purchase (Somewhat/Very
Likely) 78% 66% 80% 76% 45%
Wlon cuslomors purclasod llrougl a saIos rop aflor iniliaIIy laving accossod llo vobsilo,
mosl voro abIo lo finaIizo lloir purclaso vill fovor loIoplono caIIs llan a lypicaI cuslomor llal lad
nol usod llo vobsilo. Moro dolaiIod findings from llo sludy aro oulIinod in .
By llo spring, DoII OnIino vas convincod llal llo Inlornol vas a big vin. Hovovor, lo fuIIy
capilaIizo on ils offorls, llo OnIino Group boIiovod llal il noodod lo gonoralo somo oxcilomonl in llo
marIol lo Iogilimizo llo Inlornol clannoI for llo induslry, and moro imporlanlIy lo drivo incromonlaI
voIumo for DoII. To capluro llo modia's focus, llo OnIino Group bogan dovoIoping an aggrossivo IR
pIan. Tlo loam llon sponl llo noxl 60 days lrying lo gol corporalo approvaI for llo pIan. Scoll IcIorl
rocaIIod,
Wo voro convincod llal DoII OnIino roprosonlod llo uIlimalo oxlonsion of
llo DoII Dirocl modoI. To gol llo momonlum in llo marIol, vo noodod lo maIo a
slalomonl. Ono miIIion doIIars a day in rovonuo vas llal slalomonl. InlornaIIy,
lovovor, lloro vas somo rosislanco. DoII vas aIvays consorvalivo and lad novor
roIoasod individuaI sogmonl saIos informalion. Moroovor, somo counsoIod llal il
DeII OnIine 598-116
13
vouId bo bollor lo buiId a soIid Ioad in llo fIodgIing Inlornol clannoI boforo maIing a
spIasl in llo marIol. Bul vo voro convincod llal vo aIroady lad a soIid Ioad and
llal maIing a spIasl vouId bonofil llo DoII OnIino offorl in many vays. Ior
oxampIo, vo voro convincod llal llo pross covorago vouId loIp oducalo llo marIol
and movo il in DoIIs diroclion. Iurllor, llo oxcilomonl croalod by llo pross vouId
loIp drivo DoII OnIino inlornaIIy. Il vas nol unliI MiclaoI DoII supporlod our pIan
llal llo vind sliflod in our diroclion.
Three More Months$2 MiIIion/Day Revenue
In May 1997, DoII conduclod a foIIov-up cuslomor rosoarcl sludy (Wavo II) lo llo rosoarcl
conduclod in Docombor 1996. To quaIify for llo sludy, parlicipanls voro roquirod lo lavo usod DoIIs
vobsilo lo oblain producl and pricing informalion prior lo purclasing, and lad lo lavo purclasod a
DoII porsonaI compulor villin llo Iasl 90 days. Tlo sludy comprisod 150 individuaI cuslomors
(DCSDoII CalaIog SaIos) and 150 businoss cuslomors (BSDBusinoss Sysloms Division). (DolaiIod
findings from llo cuslomor rosoarcl sludy aro oulIinod in .)
Many of llo rosoarcl rosuIls voro consislonl vill llo oarIior findings. Mosl rospondonls
voro oxporioncod compulor usors, vill onIy 8 of DCS cuslomors indicaling llal llis vas lloir firsl
IC purclaso. Cuslomors roporlod ligl IovoIs of salisfaclion vill llo vobsilo, vill cIoso lo 90 of aII
cuslomors indicaling llal lloy voro salisfiod or vory salisfiod vill llo procoss.
AddilionaI informalion gIoanod from llo socond sludy concornod llo vay cuslomors found
llo vobsilo. ApproximaloIy laIf of llo cuslomors indicalod llal lloy lad nol soon any informalion
dirocling llom lo llo vobsilo, vill aboul 24 ciling ads in compulor pubIicalions and an addilionaI
8 indicaling llal ads in gonoraI businoss pubIicalions lad diroclod llom lo llo DoII vobsilo. On llo
sorvico sido, lloso llal usod DoIIs loclnicaI supporl (approximaloIy 100 of llo 300 survoyod) did so
lo rosoIvo probIoms, (25 - DCS, 18 - BSD cuslomors), fix lardvaro (10 - DCS, 22 - BSD), and dovnIoad
curronl drivors (4 - DCS, 18 - BSD).
By }uno 1997, saIos al llo rolaiI silo lad rison lo $2 miIIion por day vill ovor 250,000 silo
visilors por vooI. Tlo majorily of ordors gonoralod voro from llo consumor and smaII businoss
sogmonls. Iogging onlo llo silo, cuslomors voro abIo lo pIaco ordors oIoclronicaIIy vill llo fuII
rango of sorvicos llal voro avaiIabIo ovor llo loIoplono, incIuding producl informalion, ordor slalus,
and producl supporl. Willin llo DoII silo, cuslomors ovaIualod muIlipIo producl configuralions and
oblainod inslanl prico quolos, onabIing llo cuslomor lo configuro llo bosl possibIo syslom givon lloir
budgol and porformanco roquiromonls. DoII updalod ils pricing on llo vobsilo daiIy lo onsuro llal
ils pricos rofIoclod llo roaIilios of an ovor-clanging IC marIol.
DoII OnIino vill ils miIIions of doIIars in rovonuo quicIIy bocamo llo laII of llo oIoclronic
commorco vorId. InlornaIIy, lovovor, lloro vas IillIo InovIodgo of il boyond llo OnIino Group and
sonior IovoIs of managomonl. To communicalo llis informalion lo llo company, llo OnIino Group
conduclod a campaign of "inlornaI ovangoIism." BiII Morris, Sonior OnIino MarIoling Managor,
romarIod,
Wlon DoII issuod ils pross roIoaso announcing $1 miIIion in rovonuo por day
ovor llo Inlornol, fov poopIo insido llo company Inov aboul commorco on llo Nol.
SaIos and sorvico doparlmonls didn'l undorsland ils impIicalions and lloro vas somo
foar aboul llo Nol aulomaling lloir jobs avay. As a rosuIl vo conduclod a
subslanliaI inlornaI oducalion campaign. Wo vouId go inlo llo cubos and ligl
lraffic cloIo poinls and pIaslor llom vill poslors and informalion aboul DoII OnIino.
598-116 DeII OnIine
14
Six More Months $3 MiIIion/Day Revenue. What Next?
By llo faII of 1997, saIos lad grovn lo $3 miIIion in rovonuo por day. In lypicaI DoII faslion,
llo OnIino group lad aIroady modifiod llo silo lo maIo il moro funclionaI for DoII and ils cuslomors.
Ior oxampIo, vlon Iogging inlo llo silo, cuslomors nov soIf-soIoclod llomsoIvos inlo a cuslomor
sogmonl (o.g., lomo/lomo offico, smaII businoss, govornmonl, oducalion, olc.). Tlo silo llon guidod
cuslomors lo lloso producls llal vouId bo llo mosl approprialo for lloir parlicuIar uso. Tlo
cuslomor, lovovor, rolainod llo abiIily lo configuro, prico, and purclaso any of DoII's sysloms. Tlo
cuslomor soIf-sogmonlalion vas aIso bonoficiaI lo DoII's purclasing syslom as llo cuslomor ordor vas
nov diroclIy roulod lo llo businoss unil's o-maiI box, oIiminaling llo nood lo conlraIIy sorl llo ordors
inlo businoss sogmonls.
Tlo onIino approacl lad boon roadiIy accoplod by llo DCS and BSD divisions. By yoar-ond
1997, a Iargo proporlion of DCS rovonuos voro allribulabIo lo llo onIino clannoI. Aflor somo iniliaI
concorns, saIos rops quicIIy camo lo viov DoII OnIino as a big boosl lo lloir produclivily. David
Hood, vico prosidonl of llo DCS group, romarIod,
Al firsl llo rops voro vorriod, bul lloy sav llal llo silo vas a sourco of
liglIy quaIifiod Ioads. Tloy couId cIoso saIos vill fovor caIIs. Will our grovll
ralos lloro vas onougl businoss for ovorybody. Wo sliII lavo a fov claIIongos. Tlo
bacI ond of llo businoss is sliII anliqualod, vill compIolod ordors going from o-maiI
lo rops and llon lo ordor onlry. Woro vorIing on croaling an aulomalic IinI from
llo o-maiI lo ordor onlry. AddilionaIIy, vo lavonl boon abIo lo dovoIop llo molrics
lo forocasl domand from onIino marIoling aclivilios. UnIiIo convonlionaI marIoling
communicalion vloro vo couId accuraloIy prodicl our Iifl from promolions, poopIo
find llo Wob in so many difforonl vays.
SimiIarIy BSD vas onllusiaslic aboul llo bonofils of DoII OnIino. "Wo aro curronlIy soIIing a
significanl porlion of our businoss llrougl llo onIino sloro, romarIod IliIip vanHoullo, "and our
saIos poopIo aro oxcilod lo vorI on llo onIino loIoplono quouo. Wo lad iniliaIIy usod our Ioss
oxporioncod rops on llo onIino quouo, bul lavo found llal our oxporioncod rops aro abIo lo bollor up-
soII onIino cuslomors.
Tlo succoss of DoII OnIino aIso brougll organizalionaI clangos. Scoll IcIorl, llo Diroclor of
llo OnIino group, sav llo nood lo lavo onIino rosourcos rosidonl in oacl of llo businoss unils. As a
rosuIl, llo DoII OnIino group focusod on doIivoring llo looIs and loclnoIogy for llo Inlornol silo, vill
oacl businoss sogmonl laving ils ovn rosourcos dovolod lo doIivoring llo onIino conlonl for lloir
sogmonl. Scoll IcIorls coro group of aboul 35 poopIo did mosl of llo appIicalion programming,
coordinalod vill oulsido dosign agoncios, and mainlainod llo sorvor farms, llo bacIbono of DoIIs
onIino oporalions. IcIorl rofIoclod,
Onco DoII OnIino vas up and running, il vas a naluraI progrossion lo movo
onIino rosourcos inlo llo businoss sogmonls. Tloy Inov lloir cuslomors and lov lo
communicalo vill llom, vo didn'l vanl lo bocomo a bollIonocI. Hovovor, vill
MiclaoI DoIIs ambilious goaI of laving 50 of rovonuos onIino, somo funclions nood
lo slay conlraIizod. Tlo conlraI onIino group croalos DoII's ovoraII Inlornol slralogy,
coordinalos our vorId vido Inlornol loam, buiIds llo appIicalions and onsuros llal
llo loclnoIogy is slalo-of-llo-arl and robusl. AddilionaIIy, vo sol llo slandards for
llo doII.com silo lo onsuro a slandard IooI and fooI for ovory cuslomor. Bul if vo
voro lo allompl lo do ovorylling loro, my budgol vouId lavo lo grov oxpononliaIIy.
Tlal vouId nol bo an officionl nor offoclivo vay lo scaIo llo businoss.
DeII OnIine 598-116
15
Cost Savings: Transaction Business OnIine
12
Boyond saIos gonoralion, ono of llo mosl anlicipalod oIomonls of DoIIs Inlornol commorco
vas llo savings llal il couId gonoralo ovor llo saIos and sorvico cycIo. Iirms sucl as Cisco Sysloms, a
$7 biIIion lardvaro providor and sysloms inlogralor for compulor and communicalion nolvorIs, lad
croalod a spIasl in llo marIol vill roporlod savings of ovor $500 miIIion, roprosonling 8.3 of
rovonuos. Many al DoII voro oagorIy anlicipaling simiIar savings IovoIs.
Using dala from oarIy 1997, llo DoII OnIino group lad idonlifiod lvo polonliaI aroas of cosl
savings: saIosforco officioncy and sorvico officioncy.
SaIesforce efficiency As soon in boIov, llo Inlornol modoI rosuIlod in fovor numbor of
caIIs lo saIos rops vill an ovoraII liglor cIoso ralo.
Iconomics: Dirocl v. OnIino
In addilion lo llo caII officioncios, llo saIos rops associalod vill llo Inlornol modoI voro aIso
abIo lo acliovo liglor cosl savings rosuIling from liglor saIos quolas. Ior oxampIo, a saIos rop
assignod lo cIoso saIos (on llo plono) vlicl originalod from a vobsilo visil vas abIo lo carry 1.5
limos llo monllIy quola as a lradilionaI saIos rop. AIso, llo ordor procossor vlo landIod oIoclronic
ordors coming in ovor llo Inlornol vas moro officionl. Tlo curronl Inlornol saIos ralo of $3 miIIion por
day vas a considorabIo proporlion of DoIIs saIos in ils DCS and BSC divisions. Tlus llo saving in
llo saIosforco couId bo polonliaIIy onormous.
Service efficiency Sorvico officioncios inloronl in llo Inlornol modoI roprosonlod addilionaI
polonliaI savings for DoII. Iacl quarlor, DoII rocoivod approximaloIy 200,000 visils lo ils vobsilo lo
12
WliIo llo dala prosonlod in llis soclion of llo caso aro broadIy roprosonlalivo, aII of llo dolaiIs lavo boon
disguisod.
598-116 DeII OnIine
16
clocI ordor slalus. IiIoviso, DoII Ioggod 500,000 loclnicaI sorvico visils a quarlor and 400,000 fiIo
Iibrary dovnIoads. Iacl of lloso lransaclions vouId lavo cosl $5 lo $15 on llo loIoplono, llus
roprosonling significanl savings.
A difforonl approacl lo caIcuIaling sorvico officioncy suggoslod llal llo savings may lavo lo
bo adjuslod for an "oasabiIily faclor. Tlo Iogic of llis argumonl vas llal nol aII visils lo llo vobsilo
couId bo assumod lo bo in Iiou of a loIoplono caII. A sludy rovoaIod llal somo vob visils voro llo
rosuIl of oaso of accoss and uso. Absonl llo Wob, llo cuslomors vouId nol lavo pIacod a plono caII
lo cIarify or sooI llo sorvico (bo il ordor slalus, loclnicaI sorvico, or dovnIoad roquosl), ospociaIIy for
Iovor IovoI inquirios. Somo inlornaI oslimalos, lloroforo, suggoslod llal sorvico officioncy may bo
somovlal smaIIor for oacl of llo llroo compononls. boIov slovs polonliaI savings for ovory
100 cuslomor visils.
Inlornol Sorvico Ifficioncios
Ordor Slalus ToclnicaI Sorvico IiIo Iibrary Inquiry
100 Visils
25
(oasabiIily)
75
(al 3 visils
an ordor)
25 Ordors
8
Ilono foIIov up
17
Inlornol
(foIIov up)
100 Visils
25
(oasabiIily)
75
Visils
70
IoIIov up
on plono
5
SooI vob
assislanco
3
IoIIov up
on plono
2
Slay vill
vob
100 Visils
25
(oasabiIily)
75
Visils
25
Visils
ond up
dovnIoading
soflvaro
In addilion lo llo abovo, DoII OnIino lad aIso idonlifiod ollor savings opporlunilios. Ior
oxampIo, ropIacomonl of lard copy manuaIs vill oIoclronic dovnIoads roprosonlod a polonliaI
savings of miIIions of doIIars por yoar. On llo loclnicaI supporl sido, lloro voro opporlunilios lo
roduco laII limo by oIoclronicaIIy upIoading syslom informalion lo DoIIs loclnicaI supporl loam
boforo llo slarl of llo sorvico caII. A DoII OnIino oxoculivo oxpIainod, "An avorago loclnicaI supporl
caII Iasls aboul 10-15 minulos, vill llo firsl minulo sponl on diagnoslics. If vo couId lavo llo
cuslomor submil llo diagnoslics ovor llo Inlornol lo llo loclnician, vo couId savo ovor 10 of llo
laII limo associalod vill llo caII.
Dan Murray, llo financo managor for DoII OnIino, romarIod,
DeII OnIine 598-116
17
WliIo lloro aro difforing viovs aboul lov vo slouId moasuro llo savings
from our onIino offorls, ils imporlanl llal vo oslabIisl a moasuromonl syslom. Ior
oxampIo, lo maIo moasuromonl oasior, vo assignod soparalo loIoplono numbors for
caIIs originaling from Inlornol silo visils so vo can difforonlialo and anaIyzo lloso
caIIs from llo lradilionaI caIIs llal como llrougl llo syslom. UnIoss vo lavo a
moasuromonl syslom, voII nol undorsland llo uso of llo onIino syslom as a pIanning
looI and voII novor undorsland llo cosl savings. Al llis limo, vo undorsland llo
saIosforco officioncios bul nood lo furllor oxpIoil llo polonliaI in llo sorvico doIivory
sido.
ReIationship Business OnIine
In addilion lo ils rolaiI sloro, DoII lad aIso dovoIopod and Iaunclod ovor 200 cuslomor-
spocific vob pagos for ils Iargo cuslomors, aIIoving llom Inlornol accoss lo passvord-proloclod,
cuslomor-spocific informalion aboul DoIIs producls and sorvicos. Tlo cuslomizod pagos, caIIod "DoII
Iromior Iagos
SM
, aIIovod cuslomors lo configuro, prico, and buy sysloms al approvod, discounlod
pricos, lracI ordors and invonlory llrougl dolaiIod accounl purclasing roporls, and accoss conlacl
informalion for DoII accounl and sorvico and supporl loam mombors, incIuding loIoplono numbors,
o-maiI addrossos, and pagor numbors. IniliaIIy, DoII focusod on ils Iargosl pIalinum accounls (vill
DoII saIos groalor llan $10 miIIion) and llon ils goId accounls (saIos $5-10 miIIion). Givon roconl
advancos in Inlornol loclnoIogios, DoII anlicipalod oxpanding ils Iromior Iagos, offoring al a
minimum a simpIifiod silo for ovory cuslomor vlo lad an agroomonl vill DoII.
In dovoIoping ils Iromior Iagos, DoII looI a ground-up dovoIopmonl approacl anaIyzing llo
cuslomors inloraclion vill DoII boforo, during, and aflor llo saIo, during llo producl ovaIualion,
nogolialion, and spocificalion plasos. As parl of llal procoss, DoII discovorod llal llo majorily of ils
cuslomors vanlod lvo liors of accoss for ils usors. Tlo firsl lior of accoss vas gonoraI accoss for llo
cuslomors ompIoyoos vlo vanlod lo oblain gonoraI informalion aboul company-approvod offorings,
producl configuralions, ordor slalus, and pricing. Tlo socond IovoI of informalion vas moro spocific
and incIudod accounl saIos dala, dolaiIod sorvico informalion for inlornaI "loIp dosI porsonnoI, and
DoII loam accounl loIoplono and pagor numbors. Ono DoII managor romarIod on llo dovoIopmonl of
llo Iromior Iagos,
Irom llo vory boginning vo Inov llal llo Inlornol vas an opporlunily.
Woro a dirocl company and llo Inlornol is jusl IiIo llo plono or llo fax. In doing
our rosoarcl, cuslomors loId us llal lloy vanlod DoII lo bo jusl IiIo a banI. Ior llo
vilaIIy imporlanl lransaclions, cuslomors vanl lo laII diroclIy lo somoono, ollorviso
lloy profor lo uso an ATM.
DoIIs firsl IovoI of dovoIopmonl vas, "}usl llo basics, capluring vlo lo caII for vlal, and o-
maiI and pagor numbors. AIllougl rudimonlary, llo dovoIopmonl provod Ioy in domonslraling a
commilmonl lo llo doIivory of culling odgo loclnoIogy lo cuslomors. AIllougl cuslomors didnl
quilo Inov vlal lo do vill llo Iromior Iagos al firsl, lloy did boIiovo llal il domonslralod our
viIIingnoss lo invosl in llom, romarIod an OnIino loam mombor. Tlo procoss for a Iromior Iago
cuslomor lo ordor a IC from DoII variod according lo llo cuslomor. Somo corporalo cuslomors lad a
"bIanIol purclaso ordor numbor so llal ordors vonl diroclIy lo DoII, vliIo ollor cuslomors roulod
purclasing lo an inlornaI purclasing doparlmonl vlo croalod a purclaso ordor and llon sonl llo
ordor lo DoII.
IncroasingIy, DoIIs cuslomors sav llo Iromior Iagos as a managomonl conlroI looI.
Iurclasing officos, allompling lo conlroI IC purclasos, viovod llo vob pagos as a moans of
onforcing producl slandards in incroasingIy doconlraIizod businoss onvironmonls. AddilionaIIy,
598-116 DeII OnIine
18
DoIIs cuslomors sav llo silo as a moans of roducing vorI Ioads, ansvoring roulino quorios rogarding
ordor slalus, producl configuralions, and basic usor loIp funclions. DoII found, lovovor, llal acluaI
usago of llo Iagos in llo silo companios vas mixod. "Ils nol a caso of buiId il and lloy viII como,
romarIod Tom Marlin, DoIIs diroclor of GIobaI Businoss DovoIopmonl, "Cuslomors nood lo promolo
llo silo inlornaIIy, boforo lloy bocomo avaro of il and acluaIIy slarl using il.
Bul somo cuslomors lad aIroady bogun lo porcoivo ils bonofils. Ior oxampIo, Dolroil Idison,
a Iong limo DoII cuslomor, found llal ils Iromior Iagos voro an opporlunily lo movo quicIIy lo
oIoclronic purclasing. Tloy usod DoIIs vobsilo, doII.com, lo gol roquirod informalion on DoIIs
producls and sorvicos and lo configuro sysloms. According lo a Dolroil Idison roprosonlalivo:
Wo lavo cul a vooI of procossing limo, improvod llo doIivory soquonco,
and mado ordoring oasior...Wo can monilor ordors onIino, pIan inslaIIalions, and
voro novor slucI vill unoxpoclod invonlory. And DoII mainlains an oxacl lislory of
vlal vo lavo purclasod in a dalabaso accossibIo llrougloul our silo.
13
WliIo many viovod DoII's OnIino capabiIily as a moans of roducing llo cosl of ovnorslip lo
cuslomors as opposod lo dirocl savings for DoII, a Ioy bonofil of llo Iromior Iagos vas llo
adminislralivo oporalionaI supporl il gavo lo llo saIos rop loam. Will llo amounl of dala avaiIabIo
onIino, rops couId aIIocalo moro of lloir limo lo soIIing sysloms rallor llan doaIing vill oporalionaI
issuos sucl as ordor slalus, pricing configuralions, olc. According lo Tom Marlin, "A saIos rops
aclivo soIIing limo couId incroaso lvo or llroo-foId vill llo onIino modoI. In llo lradilionaI dirocl
modoI, a saIos rop sponl 45 of lis/lor limo on oporalionaI mallors, 15 of lis/lor limo on aclivo
soIIing and llo rosl on lravoI. In llo onIino onvironmonl llo limo sponl on adminislralivo dolaiIs
couId faII lo 15 vill 45 of limo focusod on soIIing aclivilios. SurprisingIy, llo onIino modoI lad
provod difficuIl lo "soII inlornaIIy, ospociaIIy in llo Inlorpriso marIol sogmonl. Tom Marlin addod,
Wo noodod lo convinco llo saIos oxocs llal llo onIino modoI vas a saIos
faciIilalor for llo accounl loamllal vo voronl lrying lo laIo saIos avay from llom.
Many of llom sav a Ioss of accounl conlroI vill llo onIino syslom. Boforo,
ovorylling aboul llo accounl vas undor lloir conlroI. Wo lavo lriod lo focus llo
saIos rops on llo nood lo focus llomsoIvos on ligl vaIuo-addod aclivilios llal roaIIy
gonoralo saIos and Ioavo llo Ioss vaIuo-addod aclivilios IiIo llo spoc slool and ordor
slalus issuos lo llo Inlornol.
}usl as llo OnIino sloro ovoIvod so loo did DoII's Iromior Iagos. In llo faII of 1997, DoII
bogan dovoIopmonl of rovisod Iromior Iagos llal couId scaIo lo llousands of pagos using Aclivo
Sorvor Iagos (ASI) loclnoIogy. DoII dovoIopod DoII-spocific soflvaro looIs llal aIIovod saIos loam lo
croalo dynamic Iromior Iagos laiIorod lo individuaI accounl noods. ( slovs llo nov
Iromior Iago) Rallor llan croaling a slalic silo, in Ioss llan 24 lours, using ASI a saIos loam couId
croalo a nov Iromior Iago silo and updalo il on domand. MiclaoI Svarl, Sonior OnIino Managor
rosponsibIo for Iromior Iagos romarIod,
Tlo dovoIopmonl of llo nov looIs is a roaI broaIllrougl, croaling a scaIoabIo
producl for Iromior Iagos. Wo'vo aIroady bogun vorIing vill 500 cuslomors vlo
immodialoIy sav llo vaIuo of llo Iromior Iagos. Ovor llo firsl quarlor of 1998 vo
aro conducling lraining and avaronoss sossions for aII accounl saIos rops lo bring
llom up lo spood rogarding lov Iromior Iagos can bo dovoIopod and lov llo saIos
loams can uso llom lo oxlond roIalionslips vill oxisling cuslomors and croalo a
difforonlialing faclor vill polonliaI nov cuslomors.
13
Ixcorpl from DoII pubIic roIalions documonl
DeII OnIine 598-116
19
Strategic Decisions
MiclaoI DoII limsoIf lad llrovn llo gaunlIol lo lis managomonl loam. "Tloro is no roason
vly vo cannol do al Ioasl 50 of our businoss ovor llo Wob llo noxl fov yoars, lo lad said. "Tlal
vouId obviousIy moan llal vo lavo lo croalivoIy oxlond and buiId on our dirocl businoss modoI.
Bul sucl a llrusl aIso raisod roIalod slralogic quoslions. Many sonior managors lad bogun lo
soo llo vaIuo of llo Nol in llo consumor and smaII businoss sogmonls, romarIing, "Will doII.com
voro in llo consumor marIol nov. Wo finaIIy lavo a clannoI llal is consislonl vill our DoII Dirocl
modoI and llo marIol is lugo. Wlal's moro, vo can accoIoralo our gIobaI oxpansion villoul llo nood
for capilaI invoslmonl in a saIos organizalion. Indood, as a rofIoclion of llo clangos in DoIIs
consumor businoss, llo DoII CalaIoguo SaIos (DCS) division lad boon ronamod DoII Homo SaIos
(DHS).
Somo managors, lovovor, voro sliII rosorving judgmonl unliI lloy sav llo promisod vindfaII
cosl savings offorod by llo Inlornol, vliIo ollors voro vary llal a jump inlo llo consumor marIol
vouId Ioad lo llo maoIslrom of llo sub-$1000 IC llal vouId uIlimaloIy orodo DoII's profilabiIily in
boll llo consumor and uIlimaloIy llo businoss marIols. AddilionaIIy, somo ollor managors voro
aIso Ioss corlain llal llo samo marIol opporlunilios oxislod vill Iargor cuslomors in llo Inlorpriso
and Iroforrod Accounls marIols, sliII slruggIing lo undorsland lov llo OnIino ModoI doIivorod
incromonlaI vaIuo lo boll DoII and lloso cuslomors.
WliIo somo sav llo Inlornol as a lugo opporlunily, ollors in llo induslry sav il as a
doorvay for compolilors lo finaIIy allacI llo DoII Dirocl modoI.
DoII facos groalor claIIongos llan ovor. Ils prico odgo is graduaIIy oroding. Il
las yol lo provo llal usors in many counlrios aro viIIing lo buy dirocl. And ils
compolilors fuIIy undorsland llo lricI llal's drivon DoII's succoss.
14
In conlrasl, sonior managomonl al DoII vas onllusiaslic in omplasizing llo imporlanco of llo
onIino offorl. Morlon Topfor concIudod,
Wo lavo conlinuaIIy domonslralod our commilmonl lo adding vaIuo for our
cuslomors and slocIloIdors. In llo spaco of llroo slorl yoars our slocI las cIimbod
2,000 and our ROIC
15
is 186. Wo soo llo onIino inilialivo aIong vill our
inilialivos in sorvors and vorIslalions as crilicaI in our drivo lovards conlinuod
grovll and profilabiIily for DoII.
14
"Nov Ivoryono in ICs vanls lo bo IiIo MiIo, Soplombor 8, 1997.
15
Rolurn on Invoslod CapilaI
598-116 DeII OnIine
20
IinanciaI Iorformanco of DoII Compulor Corporalion ($ in miIIions)
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
Net saIes
($ in miIIions) 69.5 159.0 257.8 388.6 546.2 889.9 2,013.9 2,873.2 3,475.3 5,296 7,759
United States 65.5 153.1 318.2 300.3 358.9 648.1 1,459.6 2,037.2 2,400.0 3,474 5,279
Europe 6.0 39.6 88.3 187.4 241.9 553.0 781.9 952.9 1,478 2,004
Other international 1.3 54.0 122.4 344 476
Cost of sales 53.6 109.3 177.3 279.0 364.2 607.8 1,564.5 2,440.4 2,737.3 4,229 6,093
Gross profit 15.9 49.7 80.5 109.6 182.1 282.2 449.5 432.8 738.0 1,067 1,666
Operating expenses:
SGA 10.3 27.4 51.0 79.7 115.0 182.2 268.0 422.9 423.4 595 826
R&D 1.5 5.1 6.6 17.0 22.4 33.1 42.4 48.9 65.4 95 126
Total operating expenses 11.7 32.5 57.7 96.7 137.5 215.3 310.3 471.8 488.8 690 952
Operating income 4.1 17.2 22.8 12.9 44.6 66.9 139.1 -39.0 249.3 377 714
Net income 2.2 9.4 14.4 5.1 27.2 50.9 101.6 -35.8 149.2 272 531
% of Net sales
Net sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
United States 100.0 96.3 84.6 77.3 65.7 72.8 72.5 70.9 69.1 66.0 68.0
InternationalEurope 0.0 3.7 15.4 22.7 24.3 27.2 27.5 27.2 27.4 28.0 26.0
Internationalothers 0.0 0.0 0.0 0.0 0.0 0.0 0.1 1.9 3.5 6.0 6.0
Cost of sales 76.9 68.5 68.5 71.8 66.7 68.3 77.7 84.9 78.8 79.9 78.5
Gross profit 23.1 31.5 31.5 28.2 33.3 31.7 22.3 15.1 21.2 21.1 21.5
Operating Expenses
Marketing and sales 14.8 17.2 19.8 20.5 20.9 20.5 13.3 14.7 12.2 11.3 10.7
R&D 2.3 3.5 2.8 4.4 4.1 3.7 2.1 1.7 1.9 1.8 1.6
Total operating expenses 17.1 20.7 22.6 24.9 25.0 24.2 15.4 16.4 14.1 13.1 12.3
Operating income 6.0 10.8 8.9 3.3 8.3 7.5 6.9 -1.3 7.1 7.2 9.2
Net income 3.1 5.9 5.6 1.3 5.0 5.7 5.0 -1.3 4.0 5.1 6.8
598-116 DeII OnLine
22
Induslry Tronds
Tlo IC marIol vas dividod inlo llroo main producl sogmonls: dosIlops, nolobooIs, and nolvorI
sorvors. Tlo IC sorvor marIol vas llo faslosl groving sogmonl of llo IC marIol, vill a 32 incroaso in
slipmonls from 1995-1996. Tlis ligl margin sogmonl (vill margins 30-50 liglor llan ICs) lad lradilionaIIy
boon dominalod by Compaq, HovIoll-IacIard, and IBM, vill a combinod 54 slaro. Hovovor, voIumo grovll
and margin slrongll lad allraclod nov compolilors sucl as DoII, Galovay, and DigilaI Iquipmonl. Will
improvod foaluros sucl as Iargor scroons, faslor spoods, and Iovor pricos, Iaplops voro bocoming moro popuIar,
vill a 23 annuaI grovll ralo forocaslod llrougl llo yoar 2001. Iurllor, Iaplops voro incroasingIy viovod as
ropIacomonls for dosIlop ICs. (In 1994, approximaloIy 20 of U.S. porlabIos voro usod lo ropIaco dosIlops, by
1997, il vas forocaslod lo roacl 30.) Tlo dosIlop marIol vas forocaslod lo grov al 14.5 and vas
claraclorizod by fiorco prico compolilion as llo IC lad boon lransformod inlo a commodily-IiIo producl
claraclorizod by InloI procossors (usod in 85 of ICs vorIdvido) and Microsofl Windovs (usod in 83 of ICs
vorIdvido) oporaling sysloms. Soo boIov for roconl induslry saIos by producl and by Ioading
manufacluror.
Compulor Induslry SaIos by producl and Ioading manufacluror (in llousands of unils)
U.S. 1995 U.S. 1996 WorIdwide 1995 WorIdwide 1996
Desktop PCs 18,269 20,222 49,611 57,893
Portable PCs/Tablets 3,583 4,777 8,483 10,908
Servers 343 457 1,032 1,437
Total 22,195 25,456 59,126 70,238
U.S. 1995 U.S. 1996 WorIdwide 1995 WorIdwide 1996
Compaq Computer Corp. 2,790 3,449 6,079 7,214
Dell Computer Corp. 1,034 1,775 1,824 2,838
Gateway 2000 1,155 1,608 1,337 1,990
Hewlett Packard 870 1,365 2,092 2,954
IBM 1,858 2,235 4,803 6,140
Total 7,707 10,432 16,135 21,136
Sourco: Dalaquosl
In 1997, many anaIysls claraclorizod llo IC induslry as incroasingIy maluro in boll llo lomo and
businoss IC sogmonls. Supporling llis assorlion vas llo slaIIod ponolralion of lomo ICs, vill 38-40 of U.S.
lousoloIds ovning a IC. Iurllor, vill ovor 50 of lousoloIds vill incomos ovor $50,000 ovning a IC,
ropIacomonls and upgrados rallor llan nov sysloms voro bocoming imporlanl. Rosoarcl in oarIy 1997
indicalod llal 32 of consumors vlo bougll a lomo IC voro firsl-limo buyors comparod lo 49 for llo samo
poriod a yoar oarIior.
Will incroasing saluralion of llo lomo IC marIol, sovoraI manufaclurors lad dovoIopod an onlry IovoI
IC vill a sub-$1,000 prico poinl. Ioaluring an oIdor InloI procossor and sIovor poriploraI spoods (in iloms sucl
as modoms and CD ROMs), llo producl vas largolod al llo Ioss affIuonl lousoloId. Ioading llo vay voro
ASTs $997 producl llal vas slippod lo WaImarl in 1996 and Compaqs Irosario 2120 al $999 vlicl vas
inlroducod in 1997. By llo ond of 1997, llo IC marIol vas bipoIar, vill roconl oslimalos suggosling llal
approximaloIy 33 of llo marIol vas saIos of lloso sub-$1,000 "baro-bonos sysloms and 66 voro saIos of
fuIIy-Ioadod, slalo-of-llo arl ICs soIIing bolvoon $2,000-$2,500.
16
Ior many, llo inlroduclion of llo Iov-ond
producls voro a doubIo-odgod svord. On llo ono land, oslimalos suggoslod llal IC ponolralion ralos couId
roacl 53 by llo yoar 2001 drivon by Iov-ond saIos. On llo ollor, many aIso allribulod llo Iov-ond ICs lo
16
"Nov Cloap ICs aro slaIing up llo induslry, , Soplombor 10, 1997, p. B1
DeII OnLine 598-116
23
incroasing prico docIinos (in llo firsl nino monlls of 1997, llo avorago rolaiI soIIing prico of a IC foII from $2,400
lo $1,500) and margin orosion (margin on Iov-ond maclinos voro 10 rallor llan 20). Iurllor, somo anaIysls
voro aIso concornod llal lloso sysloms couId cannibaIizo llo corporalo marIol, vloro corporalions voro
domanding cloapor and simpIor maclinos for lloir nolvorIs.
On llo corporalo sido, ponolralion vas aIso ligl vill an avorago of 1.1 ICs por dosIvorIor (incIuding
mobiIo saIosforcos) in Norll Amorica and .8 ICs por dosIvorIor in voslorn Iuropo and Asia Iacific. Rallor
llan inslaIIing nov ICs, mid lo Iargo sizo businossos voro upgrading lloir inslaIIod baso lo nov sysloms
foaluring oillor Ionlium or Ionlium Iro procossors. In Docombor 1996, lovovor, 75-80 of corporalo sysloms
sliII usod procossors sIovor llan Ionlium procossors.
17
Iargo corporalions voro bocoming sIovor lo adopl nov
loclnoIogios. Buying docisions voro slifling from doparlmonlaI IovoIs lo sonior IovoIs in llo organizalion, and
vill llo sizo of invoslmonls lloy voro incroasingIy incorporalod inlo budgol cycIos. AddilionaIIy, incroasod
considoralion vas boing givon lo llo limo nocossary lo maIo clangos, in ovaIualing nov sysloms, and lraining.
As ono induslry obsorvor nolod, "Tlo oId succoss modoI, in vido-opon, groon-fioId marIols, in vlicl suppIiors
couId "slip and run, dumping ICs al llo corporalo cuslomors or rosoIIors Ioading docI and quicIIy moving
lo llo noxl slop is obsoIolo. Tlo corporalo IC businoss is bocoming a ropIacomonl businoss.
18
17
"Microcompulor Induslry OulIooI, Iaino Wobbor, }anuary 13, 1997.
18
IDC Ixoculivo Insiglls, }uno 1997.
598-116 DeII OnLine
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xxx HiglIiglls of DoII.com
DeII OnLine 598-116
25
xxxOnIino RosoarclIirsl Wavo, Docombor 1996
Business
n=51
%
Residence
n=53
%
Web directly 47% 42%
Called sales rep 33 39
Purchased on Web but also called 20 19
Total 100% 100%
Visited site 61% 40%
Friends or colleagues 10 21
Saw advertisement 24 26
Other 4 13
Compaq 20% 13%
Digital 2 2
Gateway 20 32
Hewlett Packard 7 4
IBM 2 2
Micron 12 24
Midwest Micro 2 2
NEC -- 2
Packard Bell 4 4
Toshiba 2 4
Other 10 2
None 33 48
Have used in the past 72% 80%
Plan to use 12 8
Have no plans to 16 6
Dont know -- 6
Have used in the past 38% 20%
Plan to use 31 40
Have no plans to 31 38
Dont know -- 2
Data disguised
598-116 DeII OnLine
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xxx DoII OnIino Cuslomor Rosoarcl SludyWavo II, May 1997
BSD(150) DCS (150)
Gateway 33% 59%
Micron 27 29
Compaq 21 15
HP 7 13
None 33 19
Have used in the past 54% 56%
Plan to use 23 22
Have no plans to 20 19
Dont know 3 3
Have used in the past 37% 34%
Plan to use 50 54
Have no plans to 12 9
Dont know 1 3
BSD (150) DCS (150) Website (82) SaIes Rep (218)
Desktop 82% 93% 88% 88%
Portable 18 7 11 13
Servers 13 0 9 6
Yes 66% 62% 58% 67%
No 25 22 29 21
Dont know 9 16 13 12
Very/Somewhat Likely 65% 67% 87% 58%
Neither Likely nor Unlikely 17 16 11 19
Somewhat/Very Unlikely 17 14 2 20
Data disguised