Post of the Day
December 10, 1999

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Apple Computer

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Subject:  Re: Why we should fear and respect DELL...
Author:  GFPE

[This post was written in response to the Post of the Day for 12/19]


While I appreciate and agree with much of what you say, I must object to the central premise.

We neither have to fear or respect Dell at all. Apple would benefit in terms of efficiency, and thus ultimately either cost to the user or profit margins, to emulate certain aspects of Dell's distribution model, but it's more optional than necessary for survival.

You see, well, let's rewind. The PC industry (Dostel/emerging Wintel, what they called IBM or PC compatible) in the late 80s was dominated by IBM and super-expensive Compaqs. Compaqs then were like the Mercedes Benzes of computers. They were outrageously expensive, but had this reputation for great quality, superior to IBM. Dell was a young but respectable newcomer. Gateway came later. Also, there was PH, Acer, Packard Bell, etc. And...There were also literally hundreds or thousands of small to tiny assemblers of PC compatible computers. These were the real bargain basement computers.

What Dell did was to take advantage of existing inefficiencies existing in the industry, work hard to eliminate them in its supply-assembly-distribution stream, pull them together in a package that carried a name and with customer support. So they were able to maintain margins while able to ship inexpensive PCs. As the competition increased, Compaq and IBM were forced to lower their prices. Dell started to make inroads in exactly the same areas as Compaqs and IBMs, the office. Now with more networked environments, some have called it corporate IT markets...whatever...

" more great improvements to be made in this industry right now through Dell-like practices."

Dell took advantage of huge inefficiencies in name-brand PC production and distribution that added cost, plus the competition forced with time margins for the whole industry. Look in some late 80s computer magazine. The reigning Compaq and IBM PCs were ridiculously expensive. The no-names very cheap, but still much more expensive than today.

However, during this decade many of these companies have been forced to become more efficient or to bleed...which is what happened to IBM's PC division and to some extent Compaq and HP more recently. Packard Bell fell by the way-side to be replaced in the "kind of a name" super-cheap category by eMachines. Etc. Margins have been squeezed out. Huge price differentials and very expensive PCs are a thing of the past: no more great improvements to be made in this industry right now through Dell-like practices. Just diminishing margins.

What about other areas that Dell could get into? Well, one every company half-way dealing with tech or telecom is much more tech- as well as productivity-savvy nowadays. Nokia et al is not about to allow a Dell make any headway. Zero. They are brilliant: great at marketing, great at anticipating trends, very efficient operations, already great brand name, etc. Dell has no in there.

Internet appliances? Well, besides that nobody knows exactly what they are yet, there again are players from all angles competing, and now that MS Windows does not *have* to be the OS, the field is opened up. So expect Internet appliances from everywhere, literally: Apple, Sony, Motorola, Compaq, Sun teamed up with Nokia (they are already working together), Gateway, Sega, and ultimately Amana, Frigidaire, get the point. There will be so many areas in which products are networked that there will never be one dominant player. I fully expect to a large extent that the present big players in a general product category will be the best for selling networked versions of their products, since the networking/computing component will get easy. So, you'll buy a networked Frigidaire refrigerator. The network will be everywhere, so eventually you won't even notice it.

So...outside of selling PCs online, where does that leave Dell. It doesn't have the same market conditions and over-priced and inefficient competitors it used to have, and in every potential area it might want to gain dominance in again, there are far more competitors, and many already formidable, efficient and with a proven track record.

Also, the whole environment in both business and technology is different. Even the titans nowadays are scared - ever striving to move, progress, please and be more productive, lest a young upstart take their place. Why is the 90s really the MS decade, and its undoing decade? Because unlike in the 80s, there is a paranoid fever in the air, a mad rush for even the largest companies to stay ahead of the others. The 90s are much more capitalistic in the tech sector than the 80s ever were (we remember the 80s for unmitigated capitalism of another kind: real estate, finance, savings and loans). Efficiency, the Internet, increased productivity, competitive edge: these are the catch phrases and mantras of the 90s.

Companies, including most of the big potential competitors of Dell in any new market it might foray into, are just plain more competitive and efficient in the 90s. Dell evolved in the 80s, exploiting 80s and early 90s inefficiencies in one industry, the PC industry...but those days are gone.

And Apple? Apple doesn't even need to duke it out like the other guys. It will be like Sony - it'll dominate from an indelible name and products that are associated with useful technology, practical innovation and great design. It doesn't need to be 90% of any market to be huge. It just needs to be 10-30% of the top tier of a number of related markets. That's really what Sony is, with a few exceptions (stereos and camcorders, where it's probably 30-40%).

Let Dell, Compaq and to lesser extents Gateway and Hewlett-Packard and eMachines and a hundred other PC makers duke it out for an ever-less-profitable PC space. Let them fumble their way into some other profitable markets, most of the time failing.

Apple doesn't need that kind of market share. It needs to always be innovative and splashy. That is what is expected of it by the market and by consumers. Apple has the highest gee whiz factor of any computer company and possible any consumer tech company. They like Sony are associated with quality and innovation and ergonomics and design. Sony is never the cheapest kid on any block, but it's consistently one of the biggest players. Give people quality, and sell them an "image" that actually is reflected in the product, and they pay more. Margins are better. The company is healthier.

"[Apple] needs to always be innovative and splashy. That is what is expected of it by the market and by consumers."

As long as Apple leads, is innovative and bold, in a consumer-mindful and media-savvy way, it will be hugely successful in terms of revenues and earnings, growing healthily, creating new markets and niches. It MUST never play by the same rules as the others. If it did, we wouldn't have the PC itself (IBM only got into it when they saw the Apple II was selling really well), the GUI, the iMac, etc...

Apple knows how to capitalize on its innovations and assets and to market its unique products and the image that goes with it.

The reason there was a period in the wilderness was that it lost its identity in Jobs absence as a company with a mission to be at the front line of emerging consumer desires. It lost its vision thing. It still innovated like crazy (Newton, PowerPC, etc.) but not with panache. Not with the same flare and desire to be noticed.

That is Apple's greatest secret weapon, and it's wonderful that a more mature Jobs was able to restoke that flame. It's not all about him, but his panache and boldness to go ahead and to take Apple on a course again that made it be noticed in a big way, well, that was the missing ingredient.

Once that is as much part of the corporate culture, as much as the innovative design and engineering which even in Jobs absence was there, then Apple will be on a great course permanently, with or without Jobs.

Think Different...that's almost more like a message from Jobs to Apple employees than a marketing campaign to consumers.

Apple is different. And just don't worry about competition. You needn't fear or respect Dell. Apple will succeed or fail in the long-run because of its own internals. If it can maintain its present internal culture as it expands or as Jobs ages, Apple is a hundred-year (or more) company.

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