The Dell Business Model

Introduction

In 2006, Dell Ranks No. 8 in Fortune magazine's annual list of the most-admired companies in the United States1. Wired magazine in 2002 described Michael Dell as the "Internet-enabled Henry Ford figure for the new economy" 4 (Schrage M, Wired Magazine, Jul 2002). This is due for the most part to the superb integration and adaptation of Dell to the worldwide web.

Brief history of Dell

Dell was founded by Michael Dell in 1984 while he was still a student at The University of Texas. Initially Dell sold upgrades of IBM compatible PCs. In 1985 Dell produced it's first PC, the 'Turbo PC'2. Dell sold these PCs directly to the customer over the phone advertising via computer magazines. Dell entered the retail PC sector in 1990 but made an exit in 1993 in a market down turn. In 1994 the company had it's first website and market share continued to grow rapidly2. In the second quarter of 2006, Dell had around a 19% share of the worldwide PC market with its nearest rival Hewlett-Packard with roughly 15%1. Dell is according to wikipedia.org in 2006 is the lowest-price major computer-manufacturer in the United States and the 25th-largest company in the US by revenue (Fortune 500 2006 list).

Dell's initial set up had a lot of focus upon selling directly to large corporate accounts. Dell would build up a relationship with companies analysing needs and mould its service and support to the company2. These companies generally had trained operating staff who oversaw the accounts and had no need for the additional services and expertise of the reseller. Dell would effectively know the companies needs and build them computers to fill these needs2.

Dell soon realised the benefits that the internet could afford them and produced its first website in 19942. From the beginning Dell's Business model was perfect for adaptation to the internet.

The benefits that emerged from the internet

The internet is a vast retailing and distributing channel for the modern business. With the introduction of secure banking and resulting growth of consumer trust and comfort with the internet as a shopping medium the internet is a very real alternative to the 'high street'.

The internet can provide huge benefits for both the consumer and the retailer in many aspects of the shopping process. 11

One of the primary benefits is in cost. The manufacturer is often able to field a cheaper product as it is able to circumnavigate re-sellers or 'The Middle Man' and thus negate their mark up. Conversely the consumer is able to look at competition very easily and 'Shop around' to find the cheapest price. This in turn leads the manufacturer to reduce costs in order to remain competitive.

The internet does not require stock to be present at the location of the buyer. While this may cause the consumer problems - trial of goods impossible (e.g. clothes) it allows much greater range of products and encourages product customisation. A shop is only able sell what it has in stock but with the internet the item can either be made to order or shipped from a location where it is stocked.

The internet allows customers to easily interact with the company and specify their unique requirements. The customer is able to select from a range of options in many different fields to achieve a product that fulfils their conceived need.

Dell's business model is called the "Dell Direct Model" 3. It has several key areas

The direct-sales model is based upon selling directly to the customer. As discussed above the internet allows an easy