Harvard Business School 9-799-158 June 6, 1999
Professors Jan W. Rivkin and Michael E. Porter prepared this case from public sources with the assistance of Research Associate Faramarz Nabavi as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The case draws on a report prepared by Charlie Bruin, Markus Cappel, Tom Galizia, and Laila Worrell, all MBA 1998.
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Matching Dell Between 1994 and 1998, the revenue of Dell Computer Corporation rose from $3.5 billion to
$18.2 billion, and profits increased from $149 million to $1.5 billion. The company's stock price rose by 5,600%. During the same period, Dell grew twice as fast as its major rivals in the personal computer market and tripled its market share. In the first half of 1998, Dell reported operating earnings that were greater than the personal computer earnings of Compaq, Gateway, Hewlett- Packard, and IBM combined.1 On Forbes magazine's list of the richest Americans, Michael Dell, the 33-year-old founder of Dell Computer, ranked fourth with an estimated worth of $13 billion. He trailed only Bill Gates, Warren Buffett, and Paul Allen on the list and was worth more than Gates had been at the same age.2
Dell Computer had pioneered the widely publicized "Direct Model" in the personal computer (PC) industry. While competitors sold primarily through distributors, resellers, and retail sites, Dell took orders directly from customers, especially corporate customers. Once it received an order, Dell rapidly built computers to customer specifications and shipped machines directly to the customer.
The success of the Direct Model attracted the intense scrutiny of Dell's competitors. By 1997, headlines such as "Now Everyone in PCs Wants to Be Like Mike," "Compaq Reengineers the Channel: Will It Be Enough to Slow Dell's Momentum?" and "In Search of Greener Pastures, Gateway Moves on Dell's Turf" peppered the PC trade press.3 By late 1998, virtually every major PC manufacturer had taken some step to match Dell's approach.
The Personal Computer Industry
History. Electronic computers emerged from military research undertaken during World War II. In 1949, the magazine Popular Mechanics predicted that "Computers in the future may…perhaps only weigh 1.5 tons." For the following three decades, large mainframe and minicomputers, produced by vertically integrated firms such as IBM and Digital Equipment Corporations (DEC), dominated the market. As late as 1977, Kenneth...