Post of the Day
December 9, 1999
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Why we should fear and respect DELL...
...Even As We Try To Crush Them
There's been a lot of discussion about AAPL and DELL lately. I thing GPDF's "What DELL Is And Is Not" should be required reading for anyone looking to buy into either. If we accept the fact that DELL is not a tech company in the strictest sense while AAPL is, what conclusions can we draw?
I find it disingenuous to suggest that DELL's biggest asset, its business model, can be easily copied. Too often people associate a concept's simplicity (like a direct sales business model) with its being simplistic and thus easy to replicate. This bias is especially prevalent among tech investors because of the complexity of the underlying products. In reality DELL's business model is a complex set of relationships between technological acumen, OEMs and manufacturers, distribution pipelines, inventory management, cost management, accurate forecasting of customer demands, productivity, sales and marketing, and the application of value added services. The elusiveness of the DELL model is evident in the rest of the industry's' failure to mimic it.
|"AAPL especially, in its 20 or so years of existence has the distinction of being one of the poorest execution companies on the planet."|
AAPL especially, in its 20 or so years of existence has the distinction of being one of the poorest execution companies on the planet. While AAPL's poor execution days largely ended with the return of Jobs, this year should have dissuaded for good any notion that AAPL has finally cracked the code on this. Missed product shipping dates, poor forecasting of future availability of parts, poor PR moves, etc. The APPL of today is night and day compared to the AAPL of only a couple of years ago. No more exploding PowerBooks at any rate. But they still have a ways to go.
Some people make the mistake (IMO) that because DELL is not an irreplaceable part of the PC value chain that it is easily replaced. "Not a Gorilla". I disagree. As tech companies, the likes of INTC, CSCO and MSFT in many ways owe more to DELL that DELL to them. A 900 MHz Pentium III chip may be a great thing, but its DELL's business model which has built the venue for the efficient distribution of this technology. In many ways DELL's sales model is their OS and an enabling technology of the highest (if boring) order. While not proprietary in the strictest sense it is a tremendously innovative and (yes its true) creative process.
Now, as APPL emerges as the leader in creative, cutting edge consumer technology it is attracting its fair share of lemmings and hangers on. No one can deny the influence AAPL holds over the industry. But there is more to the big picture than that. DELL faces the somewhat enviable position of being able to draw upon the most efficient customer pipeline in the industry. It's like owning the only freeway into a town surrounded by dirt roads. Among most new customers DELL has no more brand identity than ADM does over people at the supermarket. DELL has made its name elsewhere. But this could change rapidly. There is no technical reason why Dell could not make internet appliances, PDAs, mobile phones, Airport knock-offs or just about anything else that pops into their heads. And they have the distribution model and cashflow to springboard any new product launch.
|"APPL has far more potential for explosive growth in the future but alternatively less room for mistakes."|
Yes, the Web Mate (or whatever their iMac knock off is called) sucks (_!_). It shows a total lack of understanding of the market they are trying to enter. Luckily for them, they can afford many failures on their way to eventual success. Their off the shelf mentality allows them to divest themselves of tech that doesn't work in favor of stuff that does. Follow the leader. Plus they have today's sales to cushion them. APPL has far more potential for explosive growth in the future but alternatively less room for mistakes. And ultimately, regardless of which product is actually better, DELL has the execution finesse to deliver where AAPL has less. Do not be deceived by DELL's lack of sex appeal. Execution is an innovation all its own. They are the Wal-Mart of tech.
None of this should be construed as lack of faith the Jobs and co. I'm as rabid as the next Mac head both for the product, the company, and the stock. QuickTime. OSX. ACDs. Firewire. iMovie. iMac. iBook. And these are just a few of the things we know about. APPL faces risks and challenges as all true visionaries must, and failure is ever present to those who seek to set themselves apart and "Think Different". Of coarse, risks reward those who take them.
Dell faces considerable challenges as well as PCs become more and more the clunky desktop paperweights we always knew they were. The true innovators see this and are leading the way into the new digital era. DELL will have to play catch up. But I think it's apropos to admit to ourselves that in some ways we have more to learn from DELL than they of us.
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