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Who Wants to be the Next Dell?
cybercomm writes "Tom's Hardware has a very interesting column regarding the future of beige-box manufacturers, such as Dell, gateway, Compaq, et all. I found this article really thought provoking, since the author has raised some really interesting issues, especially concerning the fact that the writer of the column compares reviewers to the lowest ring of the ladder, and asks one simple question: Instead of whining, why not do it? Why should you learn all the specs on the latest processor and slam the competition just because you may happen to own a P4? Why not start the same way that the Dell, Apple, Gateway, and other founders took by forming your own store, getting in touch with Asian suppliers who "are more than willing" to give you discounts, just so that they can get their foot in the lucrative N. American and European markets. Very interesting reading, that raises another what-if scenario (what if you succed and your business is based on Chinas' dragon CPU, XGI card, open-source OS...)."
i have seen some of these white box laptop systems. all you have to do is put in a hard drive, ram and os. some come with CPUs already. if you did something like this and sold it cheap enough, you could get your foot in the student laptop market. same with pcs them selfs. interesting idea. now for a business plan......
Lotas T Smartman www.lotas-smartman.net
Enthusiast sites helped to widen up the market for Asian suppliers, of which there are many, many more waiting in the wings to get into the lucrative North American and European markets. These supplies are hungry. They can feed hungry White Box vendors, but I grant that White Box vendors have to contend with the general ignorance of the people.
The people like Gateway, and the sound of those Intel chimes. They fear computers and the big Tier One OEMs feed on that fear.
You sold me there on that story. Obviously I'm passing this on to all of those Berkeley, MIT, Carnegie, Harvard, Yale grad CTO's and marketers who work at places like Alienware, Sager, Toshiba, and other smaller comp makers who spend the big bucks. This guy is definitely on to something, and I'm glad Slashdot didn't waste my time posting garbage. Oh yea, that guy's good.
MoFscker
Personally, I think the days of selling general-purpose computers to home users are coming to a close. Within a few years, real computers will be limited to businesses and hobbyists (those who use computers for their hobbies, and those for whom computers *are* a hobby).
"Joe Sixpack" will surf the net on an "Internet Center", listen to MP3s (or whatever DRM-crippled crap has replaced it) on "Media Center", etc. Regular people will stop thinking of these things as computers, and they'll just be happy that they work. To be honest, I don't know what to think of this. If Apple has survived in its niche, I'll still be able to get the stuff I need (heck, *somebody* will make sure that Linux can still run on these devices), but it's a little sad to think that this era might come to an end.
The thing that this jounalist is writing about (very well, I might add) occurs in every industry/walk of life. There are the whiners, and there are the doers. What he doesn't realize is that doers just do it, and ignore these whiners. He ends the article well... "get a grip". Personally, I don't give people like this even that much attention.
..has the author of that column started? His beef is people who complain about hardware rather than building, but he just complains about people who complain. Where's that in the food chain?
The two biggest obstacles I can see are name recognition and the Microsoft tax. If someone were selling a computer with similar specs to a Dell machine, most people are going to go with the Dell just because it's a company they've heard of before (and therefore one they can "trust"). The other problem is Microsoft: if you are going to install Windows on the computer (and possibily Office), you will have to sell your machines at a loss to compete. This is to compensate for the fact that Microsoft gives big name vendors like Dell and HP discounts on their software. I think the best way to overcome these two obstacles is to invent a product truly unique, so that people actually WANT to pay more for your system. Look at Apple. Innovation is what helped Apple rise from their own ashes, first with the iMac and now with the iPod and OS X. Jump a feature that you think will be big in the next few years, and then have the guts to use it as the cornerstone for your business.
The World is Yours.
Now, you'd better sit down for this one.... but price is NOT the only competitive advantage! In fact any successful businessperson will tell you, it's the WORST way to run a business, because somebody will always be cheaper. Not everybody is looking for cheaper and cheaper. Simple example: MS Windows vs. Linux. Linux is a LOT cheaper, but people still aren't interested. Whatever the reason is, it's very obvious that price is NOT the issue here.
...that the market for commodity systems is already saturated.
There's *always* rooom for improvement. That's what competition is all about. It might be a tough fight, but if somebody can find a competitive advantage, it can always be done. Hell, the pizza delivery market was saturated about 10,15 years ago, but Papa John's came right in and kicked ass. It *can* be done. I don't know the computer market well enough to know what that advantage could be, otherwise I'd be doing it, but I don't think it's every time to just call it quits.
Why not start the same way that the Dell, Apple, Gateway, and other founders took by forming your own store, getting in touch with Asian suppliers who "are more than willing" to give you discounts
Um, I wouldn't put Apple in the same group as Gateway or Dell.
Gateway and Dell did start by piecing together PCs... not much innovation there, just source some parts, stick 'em together, bundle it with an OS, and then you've got yourself a PC business! With good marketing and by learning from mistakes, you could have a billion dollar business!
In contrast, Apple was a manufacturer first. Basically, Apple designed a computer, made boards, designed a custom power supply, had a custom case designed, wrote software, wrote some technical manuals, etc etc.
That's pretty much how Apple does it today, with the exception that Apple has been taking more advantage of some commodity components like drives (they always have) and highly integrated ICs.
Admittedly, Apple has become quiet adept at marketing - and that's a good thing, because Apple has a niche business that requires both innovation (both in marketing and technology) to stay relevant.
It's only recently that Apple started to get into the retail business.
and I've got plenty of advice for those who might want to try it.
1. Don't take on any partners. My company had 3 owners. If it had had one owner and 2 employee's I'd still be in business. Multiple owners means that profit is divided. While you're getting started, you have to live off of whatever miniscule profit you generate. If you have to divide those profits three ways, you're going to have to learn to love Top Ramen.
2. Dealing with local distributors is a great way to get parts quickly, but their prices are awful. Get contacts overseas, and import your own parts, or work with national distributors such as Tech Data or Merisel. Just be aware that their prices will be awful too until your volume comes up.
3. If you're selling computers via mail, etc, be careful with credit cards. Chargebacks come right out of your bank account. Visa/Mastercard/etc. do a great job of protecting the customer because they can steal from the merchants. If you're hit with a chargeback, it doesn't matter that you've been victimized, too. We once had three high-end PCs (marked for signature delivery) "stolen" from a customer's doorstep. Then, when the customer decided he didn't want us to ship replacements and hit us with the chargeback, we were out nearly $10,000. I still believe the customer saw an opening and stole those PCs, but I'll never know for sure.
4. Control support costs. Many small "white-box" PC makers provide top-notch support, but customers will eat you alive if you let them. I realized that when I went over to a good customer's house to help them with a PC problem and ended up looking at a laptop we didn't even sell them. A corollary to this is that if you're going to be providing "personal touch" service, make sure that your pricing reflects it. You can't visit people's houses if you're selling a $500 PC @ 5% margins.
5. Watch inventory. Keep as low a supply on hand as possible, because when component prices drop, customers expect assembled PC prices to drop accordingly, and immediately. Your competitors watch their inventory, too.
6. If you're planning to offer services and support in addition to hardware, consider becoming a VAR instead of a system builder. You can benefit from the marketing opportunities that the Compaqs/IBMs/etc offer, and you don't have to deal with warranty support of your own boxes. If you have a service department, the companies you deal with will pay you to do warranty work.
All in all, I can't say I recommend starting a PC company. Because you're selling what is essentially a commodity, your margins are constantly being squeezed. And that sucks! But, if you have access to Asian manufacturing and can control your costs, you just might prove me wrong. Good luck to all the future captains of industry out there!
Blogging Weight Loss, Distance Education, and more at verlin.com
You take advantage of the things that you do have. As a single person you do not have the buying power but you do have a much better reaction speed to waht the market wants. Make opteron machines, they are what people want but Dell etc haven't realised that yet. Make fully custom setups (PC/Linux based DVR's, Fileservers to sleep in the other roomand run P2P). Big companys take ages toreact to market forces. Look at IBM, they fell behind simply because they were huge.
Mouse powered Chips, Open source Processors and Lego
That's almost like saying "You don't like Chevrolet? Make your own car and compete!"
You have to look at it realistically. As a national manufacturer / re-seller the road will be very tough. Hardware isn't profitable to begin with (margin-wise) and there's not much room in the market. Only company I can think of that "came in" was eMachines, but I don't know anything about them, I just know I didn't see them 10 years ago. But for example, what happenned to Packard Bell?
I think where a lot of value and opportunity lie would be any niche market... Take for example, AlienWare, who makes specific game-oriented PCs. IIRC they will even install games for you and tweak them for your hardware configuration (at no extra cost). Dell doesn't do that, so they're not in direct competition.
So where are there niches? Could someone compete with AlienWare? What about a super high-performance company that sells already-cooled OCd systems? Or an anti-Wintel company that is setting itself up correctly so that, no, you won't be clogged by DRM in a few years? I could imagine a company setting up computers for very cheap that, say, boot up in 10 seconds or less. Sort of internet or email machines for other parts of the home. Or extremely sleek looking systems -- hire a good designer and make stuff that looks better than Apple's, but is a PC inside.
There's lots of room for interesting business models. But why would you need another Dell?
Small potatoes make the steak look bigger.
I think the point wasn't that there aren't local ordering points (which is what you're describing), but rather, that Dell doesn't have *inventory* in local stores. With a market that goes obsolete so fast, half the investment in local inventory is wasted anyway. So the way to make money is by just-in-time manufacturing -- which I gather is how Dell does it: don't make it til it's been ordered and the money to pay for it is already a done deal.
Obviously there has to be some parts inventory always in their pipeline, so they can deliver in a timely manner, but by the time you get to their size, you KNOW you're going to use, say, 10,000 of a particular video card every day.
~REZ~ #43301. Who'd fake being me anyway?
Although we may all rant and rave about the wasted resources in big companies, scale does matter in the PC industry.
1. Amortizing R&D: It costs money to develop and document a new PC (learning the vagaries of drivers, interactions with myriad software packages, and cranky connections to all the possible peripherals that customers might have). The more PCs you sell, the more you get to spread this fixed cost over the customer base. (Even if you, Mr.NewPC Inc., wants to ignore this, the vendors that must supply you with engineering data and support won't).
2. Uncertainty of Sales: If you expect to sell 10,000 PCs tommorow, then the basic statistics of random arrivals of orders means that there is a 95% chance of recieving betwen 9,800 and 10,200 orders. So, you order parts for 200 extra systems (2%) provides cover in case of high demand. If demand is low, you can sell the extra 400 systems in the first few minutes of the following day. On the other hand, if you expect to only sell 25 PCs tomorrow, then these same statistical issues mean that there is a 95% chance of recieving between 15 and 35 orders. To cover the same range, you need to order 40% more parts than the average expected sales and a low demand day leaves you with 20 extra systems (almosty a full day's sales) sitting in inventory.
3. Marketing Costs: If you want to be the next Dell, you need to tell people about you. A nationally broadcast ad costs the same regardless of whether you sell millions of PCs per year or only a few PCs per year. Maybe you can find more targetted ad outlets. Maybe you can rely on word of month (although given that most dissatisfied customers are more vocal than satisfied one, word of mouth is a dicy strategy). EVen if the ad is targetted, the creation of the ad is stil a fixed cost that gets divided by the number of PCs you sell.
I'm not saying that small Mon&Pop PC companies don't have a niche (some customers will always be willing to pay more in order to buy face to face from someone they know locally). I'm only saying that big PC makers have advantages in scale.
Two wrongs don't make a right, but three lefts do.
Audrey. The eVilla. The list goes on.
Internet appliances came and went. All in the blink of an eye. What you're talking about has happened. And failed.
- Make sure to get enough venture capital, when you start you new hardware store, that you can hire somebody else to take care of customer-support.
Dell didn't have any venture capital when he started. I'm sure the "common wisdom" at the time was that you couldn't compete with IBM or Compaq without lots of capitalization, too.Maybe you can't become Dell by starting out selling computers out of your trunk while you attend college, that path is fairly worn out, but there may be other similar ideas that will lead to your becoming extremely successful.
True, doing tech support for dummies is expensive, but I'd be willing to pay less for none of that kind of support. Script-reading support has always just gotten in the way with me. Admittedly, I don't know how to sell computers without that kind of support, but maybe someone else does. Maybe sell long distance only to those who will take the risks and sell through mom&pop's that will take the cup holder calls otherwise. This might not work, but maybe there is a formula that will.
(Read the whole thing and you'll see this is constructive criticism and not just a rant.)
Not only a spell-checker, but a nice proof-read for clarity would help too. I, for one, had no clue what the article was actually about other than that the article was "thought provoking" and "interesting" reading. For example, where did this sentence come from and what does it mean?
"Why should you learn all the specs on the latest processor and slam the competition just because you may happen to own a P4?"
Huh? This relates to building and selling your own computers how, exactly? The entire paragraph is incoherent. I'm sorry to rant about this, but I get very frustrated when I have no idea what the article is about from the submission. Why would i even want to RTFA if I have no clue what it's about. In cases like this, the Slashdot editors should quote or summarize to clarify exactly what's going on.
And no doubt like most companies in such a position, Dell pays grudgingly and late. Meanwhile the supplier gets to absorb all the debt interest, too.
~REZ~ #43301. Who'd fake being me anyway?
Consider this: Design a Linux-based home PC targeted at Wal-Mart customers and their kids. The "no nonsense, no excuses" PC for America.
If you are looking to sell expensive boxes, don't forget businesses. Build sharp, top-of-the-line boxes into shiny piano-black cases, then offer to setup their office network if they buy 3 or more of the things. Want 802.11g wireless and a 5 year warranty on that? Insurance against fire, flood, acts of god? I can keep that printer of yours topped off for just $50 a month. Know moore's law? For $100 per month I'll keep your system up-to-date (every 1.5 years).
There are a lot of niches to be filled while working with businesses. They're focused upon doing something other than computing, and could really care less about what WEP encryption is. Outsourcing that to someone else makes a lot of sense, and being the guys who sold them the hardware is a good way to get into their offices... and vice versa.
The ______ Agenda
Unless you want to go after a niche market (witness Alienware's success with PC gamers), taking on established vendors in what is now in many ways a commodity market is a very dangerous proposition.
Low margins, relentless competition, and an undifferentiated product aren't exactly the factors that would lead an experienced entrepreneur to want to enter a market.
Read the EFF's Fair Use FAQ
Electronics suppliers that I've bought from were quite upfront about a sliding scale for more units, lower price. If the bid says 1 widget at $10/ea, 100 widgets at $1/ea, no one expects to get one widget for $1.
There's probably more complexity to this scenario, since I'm unclear on what stage of the bid/offer/accept stage of writing a contract you're talking about. But it seems like some more effort in negotiating might help the manufacturers, since Dell is clearly employing good/ruthless ones.
Hell, the pizza delivery market was saturated about 10,15 years ago, but Papa John's came right in and kicked ass.
Who?
Karma: Meh (Mostly from meh.)
The posts so far are about Dell's business model, but the article is asking techies to ignore Dell and build their own PCs, then build a business and negotiate for better prices. Why isn't anybody discussing building PCs?
I build PCs for myself, my friends, and my family. Most of them have custom "Solprovider" machines. I pick the parts; I build it; I install the software; I support them. PCs I build remain usable for over 5 years, and I average about 1 support call per machine per year. (If you are interested in what I build, see my October recommendations from the last time I built a PC.)
I am not attempting to turn this into a business. I have a very successful career, and the effort is too high and the margin is too low for this business to be worth my time. I refuse any money, although I expect a home-cooked dinner for my trouble, but then I only build PCs for people I care about. The other side is that these people know that I will never interrupt my paying work to help them, so sometimes their problems can take over a month to solve.
But why aren't you trying to sell PCs? You are already technical. You probably understand what the hardware does. You can learn how to use a screwdriver. You already know how to install software. The bad side is that you might have to install MSWindows if the buyer insists, but you could install grub for dual-booting, so every time the buyers watch it boot there is a chance they may choose Linux.
(Use the Maxtor 160GB drive. Use only 10GB for Linux and they will not complain. Tell them it is there so you can troubleshoot easier, but they can try it if they want. I am actually installing a new hard drive this way this week.)
I usually spend several days to research my recommendations. One day is spent researching the new technologies; one day is spent researching the various products; and a few hours are spent checking prices. Someone who builds more than one PC every 6 months would spend much less time per PC because their knowledge would remain current.
I spend my life entertaining my brain.
Electronics suppliers that I've bought from were quite upfront about a sliding scale for more units, lower price. If the bid says 1 widget at $10/ea, 100 widgets at $1/ea, no one expects to get one widget for $1. - This is where Dell gets dirty. They break these types of agreements with impunity. 10 for $1 or 5 for $1.10 becomes 5 for $1 or we'll go to your competitor.
As I said, there's always that promise of the next contract being the big one...kind of like one more pull on the slot machine. The fear is that the payoff will come just as you let your competitor step in.
Then there is also the image thing. You can tout them as a client, pretending you're in control. The hope is your competition doesn't see you bleeding, and they give up the fight, thinking you've managed to beat the beast at their own game. It's a complex issue, and one that is only slightly better grasped by being consumed and worn down. Is it better to lose face by not engaging them in the first place, or do you worry about losing face by being beaten up down the road...?
There is no honor in sitting on the side lines. You got into this business to compete. But when Dell moves the ball after the whistle blows, you'll lose everytime.
So we've focused on a different market. There is no "Dell or Compaq" in the server market - sure they sell rackmount machines, but they can't get the same discounts on them as they do on desktop hardware, so small companies like us can compete with the "big guys" (and we usually come out below their prices). We also offer better quality workmanship and customized modifications (something that can't always be said of our competitors) - the case manufacturers don't always understand that 1/16 of an inch tall or wide can make a difference between "fits" and "doesn't fit" in a rack, or that certain pieces of metal sticking up might short out certain motherboards.
Do you really need reason for beer? Wingman Brewers
Dell is who they are because no one else can duplicate their business model.
Sure, you can say you line up Asian manufacturers, blah blah blah blah blah.
Do you think that IBM or HP/Compaq or Gateway haven't tried that?
Dell's business model is a one-of-a-kind distribution/supply chain mechanism that no one has been able to duplicate. They have such incredibly tight controls over inventory and they have pounded their suppliers into giving them everything that they want in terms of how their parts are delivered, when, at great prices.
The PC hardware business has a razor-sharp margin, and this this situation, the only way you can make big money is by volume. They have such great control over prices, they actually make money on the depreciation your computer undergoes by the time you place your order and by the time they ship your CPU.
I have built every single computer I've owned since 1988. My latest computer, Intel 2.4 GHz 800 FSB was a Dell for $412. How the hell can anyone compete against that? For $412, I'm getting a 40 GB hard drive 128 MB ram, 2.4 GHz CPU with a motherboard that supports AGP 8x, SATA, etc. And best of all, Dell's CPU cases are awesome! Not one single screw I need to use, everything is snap on. The case alone is worth $100+. So instead of building and making my computer, I went with Dell.
This is why you can't compete against them.
Here's to Slashdot and all the armchair geeks!
Manipulate the moderator system! Mod someone as "overrated" today.