The all-American Dell boy

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The Independent Online

First, a few things about Michael Dell to make you choke on your cereal. Still only 34, he is the founder and chief executive of the world's second-biggest PC company, which last year had revenues of $25.3bn (£15.8bn) - an increase of $7bn on the previous year. He leads a private life with his wife and four children which stays blissfully clear of the gossip columns, and is the world's fourth-richest businessman (his 14.3 per cent of Dell is worth $21bn). No wonder when the photographer asks him to pose and look stern, a smirk keeps creeping onto his face.

Now, some things to make you unsettled: he thinks, to echo HG Wells, that we are in a race between education and national catastrophe, and that the drives by various governments to give their populations computing skills is war - a well-dressed war, wearing a smile and carrying a business card, but still war.

While you consider that, there are a couple of things that make the position of Dell Computer and its founder seem less safe. In the fourth quarter of last year the company's revenue growth slowed to 31 per cent year-on-year (against its usual growth of 40 per cent), and its operating income slumped to 14 per cent below that of 1998.

But those figures probably paint too gloomy a picture. "We are the fastest-growing and most profitable company in this sector," says Mr Dell. "We've got $25bn revenue, $1.8bn profit. We're surviving pretty well, with about 38 per cent growth." There's that little smile again. "Clearly, we're growing faster than the marketplace."

He pads around the hotel room like a well-mannered bear. "OK, the rate of sales growth for Dell wasn't the same in '99 as in '98. But we've grown significantly in the market: we added $7bn in sales. Name me a few companies that started up last year and did $7bn of sales." He looks pugnaciously gleeful.

The secret of his success is no secret; it's just the Occam's Razor of business - do not let profit-sucking middlemen proliferate - taken as far as technology allows. If you want to buy a Dell computer, you ring them, or go to the web site, and order it. If you want 100 or 1,000 Dell computers, it's the same story. No going into a store (where landlords would take Dell's money). Just straightforward direct purchasing.

It sounds obvious now, but when Michael Dell founded his eponymous company in 1984, selling computers by mail order, it was an idea ahead of its time. Then, the IBM PC was only just beginning to take over the business market, but the mindset was already one of monopoly. Computer resellers wearing cheesy suits and cheesier grins would preload some software on the machine and up the price by 50 per cent.

Mr Dell, then doing a biology degree, decided he could cut costs by getting rid of that middleman. He quit his degree at Austin University in Texas (an act with a certain irony, as we shall see), set up his company with $1,000, and vowed to overtake IBM, selling PCs by mail order.

At first people laughed, then the business grew. "The absence of a 'channel' means we got to keep more revenues," he says. The next big leap came in the mid-Nineties, with the development of the internet from an academic pastime to something businesses could use.

Dell's first website opened in 1996. One year later, it was selling $1m worth of goods daily. Not bad? Not good enough for Mr Dell. He said that by the end of that year, his company would generate half its sales through the net. By mid-1999, it had gone past 40 per cent, with the web-based cash registers ringing up $35m every 24 hours.

"Right now, we're doing $40m a day through Dell.com," he says, still smiling. And he has overtaken IBM, which said last year it would stop selling its machines through shops, and concentrate on selling them via the web.

Mr Dell - having the No2 PC company worldwide - hopes this year to outstrip Compaq, the world leader. By coincidence, Compaq too hails from Texas (in the capital, Houston). Last year, Compaq stumbled when the rise of the web created an impossible tension between its desire to sell direct to companies via the Net, and its existing network of dealers selling Compaq machines to customers. The internal power struggle put Eckhard Pfeiffer, then chief executive, into the ejector seat, after he told Wall Street last April that Compaq's profits would be half the expected value.

Compaq has become more net-focused (it aims to get 40 per cent of its revenues from the Net by the end of this year), but Dell has the edge in experience. Dell ended 1999 as the No1 seller, over Compaq, in the Americas; but in Europe and the Middle East it is third, and in Asia and the Pacific it is just eighth. Clearly, Dell could take the top slot, if it can only seize its chance. Can it? Michael Dell has always had a sharp eye for a business opportunity, whether short- or long-term. As a 12-year-old he collected stamps at his home in Round Rock, Texas. But rather than squandering all his pocket money, he turned it into a money-making opportunity, earning $2,000 organising a stamp auction. Two years later he earned $18,000 selling newspapers, more than his high-school teacher's annual salary. So he has known what it's like to be richer than his peers - even than his seniors - for years.

In 1982, aged 15, he took apart a computer for the first time. That was the year that IBM launched its first PC. Three years later the student Dell drove to Austin University) with three computers in the back of his car - a BMW - and soon had a nice sideline to his college work, selling up to $80,000 of upgraded PCs each month.

When his parents (a doctor and a stockbroker at Paine Webber, who set great store by education) came to visit, he hid the machines in his roommate's bathtub. And then he quit his degree, like that other now very rich college dropout, Bill Gates.

So here Mr Dell is, owning 14.3 per cent of a company worth $148.5bn. And what does he do with it? He doesn't have a corporate jet, prefers not to be chauffeur-driven, doesn't have any obvious trapping of wealth - chunky jewellery is certainly not his thing. In fact, he does succeed in, even insists on, living like an ordinary person (albeit one who runs a worldwide company).

An illustration: on arriving at his hotel the evening before, he found his modem and the hotel's phone system were incompatible. He sorted the problem out himself. He says he finds it essential to keep in touch with such daily issues. "If you take yourself out of that [loop], then you're doomed to a near and certain [business] death."

Does some of that come from hobbies away from business? "Well, I have four kids (aged eight, six and three-year-old twins). That keeps me busy. Between a wife, four kids and the business, I'm fully occupied."

He keeps in touch with what the ordinary web user (by definition, a computer user) is interested in by watching the polls on Deja.com, a web discussion site. The other day, surfers were invited to rate various scanners; other days it will be mobile phones, film stars, or cars.

"Occasionally, I'll surf around and pick up comments about something we didn't do right, and obviously there's a lot of feedback from customers through our site. The direct model helps us do a better job serving them."

From so much surfing, one might expect that he would have picked up lots of tips from other sites. Not so, he says. "In the internet world we have been more at the cutting edge than following." For example, one Dell innovation is the "order watch", where by logging into the web site you can find out precisely how far along the production process your machine is.

"We tend to learn more from our customers; they'll say things like, 'Showing the order status is great, but we have more than one order with you, so we'd like to see the status of all of those'."

It's not all just the web site. Dell has invested heavily in its back-office and factory systems to streamline them and eliminate the human intervention that, he discovered, tends to introduce faults. "We focused in our manufacturing system on reducing the number of 'touches' that systems go through," he says. "We found every time there's a touch process [involving a human] there's an opportunity to insert a fault. So we reduced that. That's reduced the manufacturing time and improved quality, and gives us better feedback about what the real problems might be."

On hard disks - the tiny magnetic platters which hold the data for a computer, and represent some of the most advanced mechanical engineer- ing - Dell was able to reduce the number of "touches" in the processes from more than 20 to seven. "That had a dramatic improvement in quality." The Dell computer now has 10 to 12 touches in its manufacture.

But as the range of devices which can access the internet grows - from phones to handheld computers to fridges - there is an increasing pressure to be more than just a PC company. The stock market battered Dell's stock at the end of last year because analysts felt 38 per cent revenue growth wasn't large enough (it had expected 55 per cent), and questioned Dell's ability to keep growing if it was just a PC company.

Michael Dell says his company is moving from simple boxes. Its strategy is to expand into technical support and offer "internet infrastructure support" to help people keep their web sites running smoothly, with Dell machines acting as web servers, running the systems that put up the pages.

He sees the development of the net as a dichotomy. "The traditional PC model - buy a machine and use it - is being pulled in two directions, into information services and storage. We're powering web servers, but there's also the move at the edge of the web to devices offering WAP, Internet-TV, PCs, two-way pagers."

Dell is trying to capture the latter "gadget" market with its site at Gigabuys.com, though that still betrays its Dell connection, rather than being a free-floating site for any consumer. And it is still squarely aimed at the PC owner, rather than embracing the idea of the mobile internet user, perhaps downloading email to a WAP [Wireless Applications Protocol] internet-enabled phone and sending images from a digital camera back over the network.

"I think the market is going to continue to grow in the core and the edge of the network. There will be an explosion of devices - but Psions and WAP devices are only creating demand for PCs. The most popular handheld device is the [handheld computer] PalmPilot. Now, show me somebody with one who doesn't have a PC to connect it to. These devices addict you to information more than you were before. As we get faster connections, then the uses of computing expands."

Like Bill Gates, he believes the PC lies at the heart of any computer world. John Cook, director of consumer products at Palm admitted that "much as I'd like to do away with them" he uses three PCs - including a Dell laptop.

So how can Dell differentiate itself from all the other PC companies out there? Michael Dell has said he wishes he had thought of Apple's iMac, which simply took a personal computer out of a beige box and put it in a coloured translucent one. Boom! Sales exploded for a company that had looked in terminal decline. One can only wonder - as Mr Dell wonders - what it might have been like if that had been his idea.

"We believe the form factor of machines is going to shrink," he says. ("Form factor" is computing jargon for "box".) "We will come out with radical new smaller desktop machines that break the size conventions for the desktop." But he refuses to elucidate.

The trouble is that everyone else in the PC industry has also been looking longingly at the iMac (or in a couple of cases, simply ripping it off, and getting stopped by the courts) for two years, so Dell coming out with a new "form factor" is hardly going to get people clearing a space for it on their desks.

The PC industry suffers from what might be called the penguin problem. When penguins want to catch food, they gather by the sea and look in to see if any seals are there. But none wants to be first in. So they start nudging each other to push one in. It's the same with PC companies: being first usually makes you a target, rather than a winner.

Does Michael Dell think Dell is a risk-taking company? He pauses warily, apparently wondering how either answer will play. "Sure, we take risks," he says, cautiously. Such as what? "Well, there's a fine line between experiment and risk in innovation. We aren't interested in risk for the sake of risk. We are interested in growing a business, which requires a degree of experiment."

As strategies go, Dell is having to play it both ways. There isn't much room to experiment as No2, with others snapping at your heels, yet the company needs something extra to move past its longer-established rival. Getting more from services is the classic strategy, but it also distracts from the company's core business, of providing good computers as quickly as possible. (Dell has been criticised by analysts for its relatively high prices; its cheapest machine is under $1,000.)

Being No2 isn't bad, though, and Michael Dell's success and prestige have brought other pleasant trappings, such as being invited to the world leaders' conference at Davos at the end of January.

He was impressed by a speech by Tony Blair, and they met after for a private chat. "He gave a great talk about the need to pace reforms in government to the improvements in technology, which I endorse," he says. "My point was, let's have a full embrace of e-government if we're going to, and let's do it by example. If you want to prepare a new nation to be a leader in e-commerce, look at the education system and make computing as fundamental as the three Rs."

But aren't computers expensive? You get many textbooks for the price of one computer, and they don't go out of date.

"That's true," he says. "But what defines the earning power of people in this century is their computing skills. Those are more important and valuable. The education system is enhanced through those. Companies aren't going to wait for the talent to grow, they will move the jobs to where the people are, anywhere in the world." Want to know the real problem, as he sees it?

It's that governments are always monopolies. "A lot of governments just don't have the commercial pressures that would exist in a competitive market. There's no competition for government [once elected] other than [people] leaving and going to another country."

So what could instill a sense of urgency? "Them realising this is a new form of war." War? "Sure. Economic war, a battle for the economic wealth of people and nations, as different environments in countries create societies where people can thrive.

"Governments can be the catalysts in the creation of the right environment, and the UK government has aspired to do that. But some will be more aggressive than others. Some will succeed." He isn't smiling now. "And others will fail."

Perhaps it's an odd thing for a former college dropout to be saying - that education, education, education is the really important thing. It's hard to argue against someone who parlayed a few thousand dollars into a multibillion-dollar company.

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