Dell and Compaq: Business models

Michael KaplanStockholm School of Economicsdmk@hhs.se

Structure:

Presentation of the issuesThe story of Dell and CompaqWhat can we learn?

The challange of Dell:

In April 1997, BusinessWeek reported that Dell was selling increasingly well via the Internet.

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Q2 1997Q4 1997Q2 1998Q4 1998

DellInternetSales/Dayin MUSD

The Issues:

How does the Internet transform business models?

Producing a computer at…..

components forecastbatch assemblystorage at factory/

centralwareh./resellercustomer ordercustomised at resellerdelivered to end-user

components forecastcustomer ordercustomised

assembly stocks on the ”road”delivered to end-

user

Compaq: Dell:

Key terms 1:

BTS: build to stockBTO: build to orderCTO: configure to order

Compaq numbers:

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5000

10000

15000

20000

25000

30000

1994 1995 1996 1997

Sales in MUSD

Income in MUSDEmployees

Compaq´s story (1982-1997):

used external partners whenever possible to obtain leverage

relied on EDI for integration backwardincreased the distance between itself

and end-customers introduced BTO and CTO capability latenow: tries to build relationships with

end-customers

Compaq´s key capabilities:

product-development (quality and compatability)

manufacturing (BTS based on forecasting)

procurement (economies of scale)distribution savy (well-managed

partnerships)

Dell´s numbers:

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2000

4000

6000

8000

10000

12000

14000

1994 1995 1996 1997

Sales in MUSD

Income in MUSDEmployees

Dell´story (1985-1997):

offered BTO and CTO from the outsettried to sell indirect - failedserious problems in logistics and qualitystarted to focus on large enterprisesstarted to work closely with Intelpioneered Internet salesnow: tries to personalise the customer

experience

The evolution of www.dell.com:

1989: TFP-downloading service 1993: Intranet called Dellnet1994: Internet1996: Extranet (Boeing and Ford)

www.dell.com/se

On-linecommerce

Serviceand support

Marketing

UniqueRelationsips

Structure

Targeted commercecapability at eachcustomer segment

Function Benefit

Transaction cost reductionIncremental revenue

Internal supportcapability directlyto customers

Customer satisfactionCall avoidanceEnhanced/new services

Convert browsersto buyers

Extending frequencyand dept in contact

Demand generationReduced acqusition costs

Increasing volumesLower defection rate

Customisation of customer contact:

FEW

MANY

All customers

Registered customers

Contractedcustomers Goldcustomers

Product info, order info, ordering,configuration, investor relations, support and forums

Newsletters, e-mail services, white papers

Price discounts, order history detail,statistics, premier pages,

Customisation of all services above, EDI links, and product and model schedules

Dell´s key capabilities:

relationships with demanding end-customers

BTO and CTO manufacturing capability

lean logisticsrapid technology dessimination

The latest news from Compaq:

In November 1998 Compaq announced that they would start selling directly (again)

Compaq had replanned and retooled their plants - offering BTO and CTO (almost)

Compaq launched the new Prosignia-line designed for BTO/CTO production

Compaq created a new organisational unit for SMBs

Compaq services for SMBs:

online.commerce - turn-key electronic commerce solution

online.delivery - secure online delivery of business files

online.briefcase - remote access to PC and servers

online.connectivity - basic internet access

online.backup - off site backup facility

online.library - online reference library

The latest news from Dell:

DellTalk Online Forum (virtual community)

DirectEffect (software sales) Dell-Excite alliance (personalised

pages)Dell-AT&T alliance (Internet access)E-value (instant lead to konfiguration)

What can we learn?

how it is bought changes what is sold

and what is sold changes who buys

and who buys changes how it is bought

How doesthe Internettransform businessmodels?

Transformation in practice:

Compaq starts to sell directly, but need to design a new line of computers to make it possible (how-what)

Compaq´s new computers appeal to new categories of customers (what-who)

Compaq´s new customers demand online back-up, software, library etc tied in with the computer (who-how)

What can we learn? Cont.

integrationaddressabilityinteractivitycustomisationpersonalisationpostponement

What firm capabilites are needed to support business model transformationinduced by theInternet?

Dell and Compaq: Business Models

Q & A