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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...)."
Can you still GET a beige box from dell these days?
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
You see the problem with hardware is all about margin. Unless you are moving a huge amount of goods you will loose your ass. Software on the other hand is all margin, big profit ratio's. Why do you think so many restarants go out of business? Small margins, same goes for grocery stores.
Got Code?
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.
...and while it is tempting to get into the whitebox market, it requires a significant amount of capital. Why? Bulk purchasing (ie for processors) is only really worth it pricewise if you do it in the thousands. Dell et al. do that easily now, but for "the next Dell", unless he/she/them are able to take advantage of those discounts by purchasing parts in huge multiples, it will always be cheaper for the end user to buy from current whitebox manufacturers, even if "the next Dell" provides better quality. The vast majority of people are willing to save a buck, and unless "the next Dell" can compete on price as well as everything else, it is unlikely that there would be "another Dell".
libertarianswag.com
Apparently Slashdot does, or is this a funny attempt at turning his servers into a crater one at a time and remove his sold out ass from the world?
There is nothing wrong with being gay. It's getting caught where the trouble lies.
..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.
...that the market for commodity systems is already saturated.
Trying to compete with companies like Dell only makes sense if you're the star of Brewster's Millions.
There is certainly money to be made in the computer industry. But the days when hardware firms could be started out of someone's garage are long, long gone.
Of course I'm sure there will be a whole army of dreamers and wet-behind-the-ears schmucks lined up to argue with me about this for the simple reason that the truth I speak is a threat to their pipe dream. Well I say they need to put that crack pipe down and start looking for sectors and markets that don't already have dozens of 800 pound gorillas stomping about. Just because you have a love for something doesn't mean you can turn it into a successful business, especially when that business would be servicing a competitive market with razor-thin margins.
The most anyone could hope for would to eek out a marginal existance selling highly customized systems built from hand-picked components for gamers and similar enthusiasts. (Most of whom can do it themselves, or at least think they can)
Lee
Muslim community leaders warn of backlash from tomorrow morning's terrorist attack.
They DO have stores (They've got Dell Direct sales kiosks in the mall- where you get to see something of what you're ordering through the system) and the online sales system for Dell (Whether it be by phone or by web) is also a store.
It's just that they didn't have brick and mortar storefronts until very recently- and these don't keep inventory, they're solely there to show off the wares so people can see what they're buying.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas
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.
But seriously, it's all about volumn. You have to buy a lot of parts to be able to compete - the margin on hardware is small. Your fortune isn't made just because you can sell a thousand boxes and make 10 or 20 bucks each. Now you have to be read, when half of them calls you and tell you that they can't figure how to connect that 56k modem to their adsl line or that the cup holder is broken.
Good luck...
TC - My Photos..
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!
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So, where are the horizntal bar graphs comparing Dell, Gateway, HP, Compaq & Packard Hell? Why aren't there 30+ advertisements for whoever gave Tommy the most dough? Why isn't there a seperate section in the article with benchmarks on a bunch of those brand-name PCs? I want to know how Quake 3 will run at 1600x1200! How good are these babies in overclocking? This isn't Tom's Hardware! Someone messed with my DNS settings!
Untill I see at least 20 useless horizontal bar graphs with various benchmarks that mean nothing, at best, I refuse to believe we're talking about Tom's Hardware.
Hate me!
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.
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.
I just finished working 4 years for a Korean firm that makes Dell branded equipment. We lost money dealing with Dell, but we did it to keep them from going to our competitor. No one wanted to handle the Dell account. They are cold and single minded.
Dell always came out as the worst to deal with, compared to IBM, Sun, HP/Compaq. Dell would negotiate for a certain number of units at a certain price, then order 25% of the original quantity, while demanding the original unit price. Sounds like smart business? When they break their original commitment, and then bully their way on, it's bad business.
The end result is their suppliers keep waiting for the 'big' contract that never comes along. They lose money and go out of business. Dell moves to another supplier and doesn't look back. That is one less supplier for the other buyers. Another carcass on the fire. It's called 'hollowing out', and most companies know better than to go down that road.
If you do business with me, you expect a certain percentage of every dollar we handle. Under ideal circumstances, I get 60 and you get 40. This proportion lets us both survive. Dell seeks 70/30...this helps Dell grow, of course, but the 30 means slow death for the other side. Most businesses honor the 60/40 balance, knowing that anything more will be abusive...Dell has long ago decided to cross that line.
The hope is to take the market, and then go back to 60/40...but with no suppliers left willing to take the abuse, Dell will be alone and cutting their own throat.
Dell uses just-in-time inventory and has the component makers store the parts until Dell needs them. Basically the parts aren't Dell's until they are in the system.
"Karma can only be portioned out by the cosmos." -Homer Simpson
Please don't underestimate the ignorance of the people either. Aside from reasonable prices your next biggest item should be the best tech support money can buy. Without good tech support people will just go elsewhere. You WILL get people calling you that don't understand how to plug in their color-coded cables or even how to turn it on even though it's clearly explained in a 3 foot by 3 foot fold out poster in very simple pictographs. This isn't 1990 when most of the people using computers were either businesses with support personnel or very techie home users who were used to dealing with DOS and drivers, boot disks, config.sys, etc. The majority of people today using computers are complete and utter morons. That is the problem with success: Once you've exhausted your techie base you're left with the common cattle to support your profit margins.
If you want to start a business, identify a real problem or need, and develop a product or service to address it. If you want to build computers, don't try to copy Intel and Microsoft. Design a computer that does something new and unique, or does it significantly better than existing systems.
Mea navis aericumbens anguillis abundat
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
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.
From the article:
Actually I prefer Glowing Box vendor, but what the hell. With WindowsXP and a bunch of free and open source programs (Fire/Thunderbird, etc) a small time vendor can do alot more than any time in the past ten years to provide a safe and good user experience to the massses. And I'm too busy trying to be a small time vendor working from home while my wife works outside the home, keep the two tech savvy friends who work as my full time road techs working (and one more part-timer/trainee), and get my new 2004 website online to actually sit down and write something about it.
HighSchool Startups building basic companies for dummies
Tech from home Part 1 and Part 2 A must read from someone who has "done it"
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U.S. Business Advisor sponsored by the SBA and a great resource.
Jonah Hex
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Just-in-time assembly. I imagine they're not stocking parts in a just-in-time fashion, at least not all of them.
In a purely JIT shop, everything would be obtained as it is needed (purely pull, no forecasts, no stock in principle). The primary downside is lag - you can't deliver until the slowest part has arrived/been produced and assembled.
The point is to use JIT where it's needed, on parts that drop fast in value / become obsolete very quick.. I'm sure they have lots of stock in Dell casings, ATA cables and Dell stickers (or companies which are basicly Dell inventory holders, if not), and very little of *the* fastest CPU/GFX card at any given moment.
JIT isn't a wonder cure, it needs to be applied with some sense. Computer assembly is a something of a star example though - well defined interfaces (PCI, AGP, CPU sockets) and modularity. It's no doubt it's the most important factor in Dell's success.
Kjella
Live today, because you never know what tomorrow brings