Haim Mendelson prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective
handling of an administrative situation.
Copyright © 2000 by Haim Mendelson.
All rights reserved.
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Version: (A) 11/01/00
G
RADUATE
S
CHOOL OF
B
USINESS
S
TANFORD
U
NIVERSITY
C
ASE
N
UMBER
: EC-17
N
OVEMBER
2000
D
ELL
D
IRECT
In 1995, a manager from a leading Japanese computer company was recounting his company’s
plans to conquer the US Personal Computer (PC) market: “We have a strong brand name in
consumer electronics, and what’s most important, we build many of the components that are
needed in the PC ourselves: monitors, audio equipment, CD-ROM, DRAM, and so on. This will
give us a tremendous advantage over American competitors, who have to buy everything
outside” [1].
Several years later, it looks like the competitive weapon of this and other Japanese electronics
giants had misfired. Hitachi, Sony and Fujitsu have spent vast resources trying to crack the US
PC market, but had only captured a marginal share—and they had lost money doing it. At the
same time, Texas-based Dell Computer Corporation, founded by 19-year-old Michael Dell in a
university dormitory room, was growing rapidly, sustaining a much larger portion of the PC
market than all Japanese vendors combined. And while the Japanese PC manufacturers were
unable to earn any money in the US market, Dell, which produces no PC components, was highly
profitable, grew by more than 50% each year over the 1995-1998 period, and saw its stock grow
about 30,000% in a decade (see Exhibit 1 for Dell financial summary).
Dell does not manufacture any components, but it can produce custom-built PCs in a matter of
hours. How does Dell do it? Why did it succeed where the Japanese PC manufacturers
floundered
along with the rest of the PC industry? How does Dell use the Internet to achieve
competitive advantage?
I.
D
ELL
B
ACKGROUND
The Personal Computer
In 1976, Stephen Wozniak and Steve Jobs sold their worldly possessions (a programmable
calculator and a Volkswagen) so they could start Apple Computer, a manufacturer of Personal
Computers (PCs). The Apple PC became popular with the invention of VisiCalc, a spreadsheet
program that made inroads in corporations. By 1980, IBM realized that the PC business was
rapidly developing, and decided that it must ship its own PC within a year. To meet this
challenge, IBM opted for an open architecture, using off-the-shelf components and software that
were purchased from outside vendors like Intel (the 8088 microprocessor), Microsoft (the DOS
Dell Direct EC-17
p.2
operating system) and Tandon (the disk drive). Moreover, IBM went beyond its own sales
organization and used computer retailers like Computerland and Sears Business Centers to sell
the IBM PC. The result was that the IBM PC met its one-year, August, 1981 deadline
