MICROCOMPUTER INDUSTRY

Until 1976 Post 1977

Industry Characteristics Technological improvements in four areas

Highly fragmented
❖ Launch of 8-bit microprocessors which offered
Low entry barriers
significant improvements over Intel 8080
No industry leader
microprocessors.
Low standardisation
❖ Development of standard operating system, wider
Users
variety of application software became usable on
Hobbyists
microcomputer
Computer hackers
❖ Development of 5 ¼’’ disk drive for data storage
Distribution
to remove usage of external cassette tape drives
Electronic stores
Computer retail stores
❖ Rapid improvements in cost per bit of RAM and
Smaller independent speciality electronic stores
ROM, offering more computing power at
affordable cost.
Advertisement channels
Electronic magazines
Trade shows To support need for business users
Exhibitions
Apple, A Technology Leader IBM, A Market Collaborator

● Intuitive and easy Graphic User ● Complete departure from its

Interface (GUI) traditional practice
● Point-and-click menu system
making it more easy to use
V/ ● Outsourced supply of hardware
and software components
● Attracted educational and
hobbyist market S ● “Open Architecture” -
encouraging third parties
● Apple’s OS was kept proprietary ● Collaborated with Microsoft,
introduced new OS

Compaq, IBM PC compatibles

❖ No salesforce, recruited retail dealers

❖ IBM took a move to establish proprietary hardware configuration making third parties.
❖ To which Compaq and 8 other manufacturers announced Extended Industry Standard
Architecture (EISA)
 IBM’s Customer Differentiation

Large corporates Small and Medium Business Segments

● Bulk Discounting to centralize ● Standards of service and support

purchasing ● Retail dealers to stock, sell and
● Targeted data processing managers
service
(60% share of mainframes in 1982)
● ● Massive advertising programs
Leverage direct sales to supplement
mainframes

Emerging Trends in Market

Customised solution Computers started Microsoft launched Shift from hardware

Customers started
demand by banking, becoming Windows 1990 powered vendors of
demanding
manufacturing, and commodities. to software powered
solutions for
retailing which Hence, consumers IBM PC’s vendors like
specific problems
required Value started becoming compatibility Microsoft
Added Resellers more price sensitive MAC like interface
(VARs)
.
 Compaq, IBM PC compatibles

❖ No salesforce, recruited retail dealers

❖ Ibm took a move to establish proprietary hardware
configuration making third parties.
❖ To which Compaq and 8 other manufacturers announced
Extended Industry Standard Architecture (EISA)

Emerging Trends

❖ Solutions for specific problems

❖ Customised solution demand by banking, manufacturing,
and retailing which required Value Added Resellers (VARs)

However soon enough, computers started becoming

commodities. Hence, consumers started becoming more price
sensitive.

Microsoft launched Windows 1990

IBM PC compatible + MAC like interface

Shift from hardware powered vendors of IBM

to software vendors like Microsoft
 ❖ Advertising in text magazines

❖ 24hr outline for complaints, 24-

The Story of 48hr guaranteed shipment of
replacement parts,

❖ Assembling and marketing of its

own brand of PC

❖ In house teams for product

marketing, advertising, market
research and sales support

❖ Maximum sales to corporate

accounts

❖ Unique and distinctive Direct

Model
THE DELL DIRECT MODEL
 THE DIRECT MODEL

High velocity and Low cost distribution system Built to order Manufacturing

Direct customer relationships Different products and services to

different customers
 THE
SEGMENTATION OF CUSTOMERS
RELATIONSHIP
● Fortune 2000 companies, government,
educational accounts
● Multiple unit “repeat purchase” requirements
● Outside and Inside sales reps
● Dell’s competitors in this segment:
Compaq,IBM and HP
● Evaluation of vendors on basis of : Product
Reliability, Compatibility with installed base,
stable technology.
● Upsell by Inside Sales Rep
● Payment through corporate purchase orders
or credit card
DIRECT MODEL
TRANSACTIONAL
● Medium,small businesses and home
office
● Interested in value to performance
● Dell’s competitors in this segment :
Gateway2000, other mail order firms,
retail channel
● Unique phone number
● Credit card and delivery payment option
DELL’S COMPETITION IN EARLY 1990s
 Dell’s Growing Pains
Dell believed the way to sustain growth and profitability is to have a broad range of business activities that were all
performing well. But the rapid growth caused several problems

Dell entered into distribution agreements with:

- To service the new segments, Dell launched two

new brands namely Dimension and Precision lines

- Sales jump from $890 Million to $ 2 billion in 1992

● To reach out to the small businesses and
individual customers
● Dell providing the post sales service and
support
● Systems with limited set of predetermined
configurations.
due to increase in new markets with new products
- In response to increasing sophistication of large
accounts, Dell introduced four new families of
systems:
NetPlex | Optiplex | Omniplex | Dimension XPS
 The Laptop Setback
Dell Exits the Retail Channel:

● Dell realized that the company's foray into retail channels

Grid announced one of the first successful 10 lb., was not successful.
battery-powered laptops.In 1980s industry experts
predicted that the laptop market would take off.

● The retail channels did not permit mass customization for

Rapid advancement in technology and willingness to pay which they charged a 15% percent premium. They were
more for more features from buyers led to reduced unable to charge any premium for standard configurations
price competition in portable market

Dell jumped into the laptop market around late 1980s ● In retail channels, Dell had to keep at least 60 days of
viewed laptops with a "shrunken desktop" mentality, channel inventory and similar for finished goods
leading to severe quality problems

In 1993, there was a major recall of Dell's existing laptop ● Due to severe pressure on margins, Dell formally pulled
product with a large loss because of the resulting out of retail channels in mid July 1994
inventory write-off.

Dell was committed to re-entering the laptop market only after developing a world class product
 ❖ In July 1994 with only $20 million to fund a $2.5
Dell Bites the Bullet billion business,Dell was very close to the jaws
of defeat
❖ Consumers were willing to pay up to a 5%
premium for Dell products, not as much as 15-
20% premium.
❖ Dell lowered their pricing to be competitive
❖ They were innovators in bringing Pentium [Intel's
most recent and advanced microprocessor]
computers to market.
❖ In 1994, sales of the firm rose to $ 3.5 billion.
 Strategic Decision 1
To decide the balance of product emphasis between laptops, desktops, and servers

❖ The immediate concern was Dell's strategy for ❏ Was it advisable for Dell to get into the laptop
the laptop market business again?

❖ In 1993, John Medica, the lead developer of Apple

Computer's successful Powerbook line was
appointed as the VP of portable products ❏ Should the laptops be aimed at the corporate
market using the direct channel?
❖ A significant portion of laptop sales to large
corporate customers for their sales and project
automation projects managed by system
integrators and VARs
❏ Was the retail market a better option for laptops
❖ There was also a fast-growing segment of small given the higher margins available?
office and home (SOHO) buyers in the laptop
market who preferred retail channels due to
“ touch and feel”
 Dell's strategy in the PC LAN server market

❖ PC LAN server market emerging as the most

dynamic, fast-growing, and fiercely competitive
market with key players Compaq and HP
Strategic Decision 2
❖ Dell’s large customers mainframes and
minicomputers to LAN-based client /server
solutions

❖ Assembling servers was similar to desktops

with more intensive "burn-in" tests for servers.

❖ Some executives wanted Dell to pursue the

server market on all fronts.Losing server sales
would lock Dell out of primary desktop market
as well

❖ Others felt that Dell did not have the marketing,

sales, and service expertise to support servers
and would not be taken seriously by customers
 Strategic Decision 3
The rapid growth in international operations of Dell

❖ Between 1989 and 1994, international sales had ❏ Should Dell convert all its international
gone from nothing to close to a billion dollars businesses to a replica of the direct model in the
United States, and if so, how rapidly?
❖ By 1994, Dell was present in all major
international markets with a combination of
subsidiaries and distribution agreements.

❖ A significant part of the growth in international ❏ Should Dell continue to expand into new
sales had come through retailers and distributors markets or focus on growing share in the
Lack of infrastructure to support direct model. markets the company currently competes in?

❖ Dell had supported this growth by forming

international subsidiaries as stand-alone entities
for rapid local market penetration.

This further complicated the international expansion

$100 invested in Dell stock in Jan 1990 was worth $1090 in 1994, a 61% annual return