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Speaker 1: Get in touch with technology with tech Stuff from how

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Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.

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Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer at

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Speaker 1: how Stuff Works and I love all things tech. And

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Speaker 1: recently tech news sites reported that Dell Computers was preparing

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Speaker 1: to go public again, because once upon a time it

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Speaker 1: was a publicly traded company and then it changed back

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Speaker 1: into a privately held corporation, and in July two eighteen,

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Speaker 1: it announced it was getting ready to go public again

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Speaker 1: by the end of the year. And this bit of

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Speaker 1: news prompted me to record these episodes about Dell Computers,

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Speaker 1: where the company came from, how its path has led

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Speaker 1: up to going public for a second time, and all

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Speaker 1: the trials and tribulations along the way. So today we're

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Speaker 1: going to start to explore the Dell story, and I

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Speaker 1: could not resist using the dude, you got a Dell tagline.

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Speaker 1: More on that in the second episode, but let's start

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Speaker 1: at the very beginning. So on February nineteen sixty five,

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Speaker 1: Michael Dell was born in Houston, Texas. His dad was

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Speaker 1: an orthodontist and his mother was a stockbroker, and his

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Speaker 1: parents wanted him to consider a job in medicine, but

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Speaker 1: Michael would end up pursuing a very different career. And

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Speaker 1: for one thing, Michael grew up just as personal computers

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Speaker 1: were really becoming a big deal. Apple Computer was founded

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Speaker 1: in nineteen seventy six when Michael was eleven years old,

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Speaker 1: So that was something going on in the background while

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Speaker 1: he was a kid. And meanwhile, he was learning a

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Speaker 1: lot about business and finance, primarily from his mother, and

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Speaker 1: he got to work early on. He thought it was interesting,

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Speaker 1: this idea of making money, and he turned out to

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Speaker 1: be really, really good at it, even as a little kid. Uh.

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Speaker 1: He became a dishwasher for a Chinese restaurant when he

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Speaker 1: was just twelve years old, and he used the money

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Speaker 1: he earned to support a hobby he had. He had

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Speaker 1: a hobby that had nothing to do with computers. It

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Speaker 1: was being a philatelist. What the heck is a philatalist.

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Speaker 1: It's a stamp collector. Technically, it's someone who studies stamps,

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Speaker 1: but a lot of people use the terms interchangeably. Let's

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Speaker 1: just call him a stamp collector. So he was collecting

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Speaker 1: stamps and he started having an exchange. He would do

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Speaker 1: exchanges and sell stamps and buy other stamps, and eventually

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Speaker 1: he was able to make two thousand dollars, which is

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Speaker 1: a huge amount of money for a little kid. And

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Speaker 1: as a teenager he spent summers selling subscriptions for the

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Speaker 1: Houston Post. He ditched the standard procedure, which was making

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Speaker 1: cold calls, you know, just essentially going down the phone

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Speaker 1: book and trying to call people at random. Um. He

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Speaker 1: decided that wasn't very effective, so he created a new

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Speaker 1: marketing strategy and it was really effective. He ended making

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Speaker 1: eighteen thousand dollars in a year. So his first car

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Speaker 1: that he bought was a BMW. He lives a different

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Speaker 1: life than I do. He also bought an Apple to

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Speaker 1: computer when he was fifteen, and he took it apart

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Speaker 1: to see how it worked. He put it back together again.

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Speaker 1: He would later buy an IBM PC and do the

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Speaker 1: same to that, and he saw that IBM already had

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Speaker 1: a big leg up when it came to computers in

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Speaker 1: the business world. It was a very much entrenched company.

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Speaker 1: In nineteen eighty three, upon the urging of his parents,

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Speaker 1: Michael Dell enrolled in the University of Texas with the

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Speaker 1: goal of being a premed student. So His whole thing

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Speaker 1: was his following what his parents had told him to

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Speaker 1: do go into premed He hadn't really determined what he

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Speaker 1: was exactly going to specialize in. This was his freshman

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Speaker 1: year in college, and in the meantime he kept turning

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Speaker 1: his mind to entrepreneurial pursuits. He still had this love

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Speaker 1: of business and ways of making money, and at first

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Speaker 1: he began to assemble and sell upgrade AID kits for

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Speaker 1: personal computers. So this was not about building a new

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Speaker 1: machine from scratch, but rather getting the components together that

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Speaker 1: could turn a standard PC into a more powerful machine

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Speaker 1: with more features, So stuff like more memory, expansion cards,

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Speaker 1: that kind of stuff to turn your basic computer into

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Speaker 1: a higher performing machine. And he found out a lot

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Speaker 1: of people wanted a personal computer, but many didn't want

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Speaker 1: to spend the higher prices for a higher performing machine

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Speaker 1: from the major companies, and those were selling their machines

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Speaker 1: to retailers, right they were selling computers to retailers that

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Speaker 1: then would mark up the machines even more, and so

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Speaker 1: by the time your average consumer would go into a

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Speaker 1: store to buy a computer, it would be very very expensive,

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Speaker 1: especially if you wanted something like an IBM computer. They

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Speaker 1: were selling their computers at a premium of like above cost,

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Speaker 1: So none of the major companies were selling directly to consumers,

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Speaker 1: and Michael Delfin, you doubt. Hey, what if I were

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Speaker 1: able to do that? What if I were able to

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Speaker 1: sell computers straight to customers and bypass all the retailers,

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Speaker 1: cut out the middlemen. If I bought all the components

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Speaker 1: myself and then built computers for people to their specifications,

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Speaker 1: I could sell them for a much lower price and

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Speaker 1: get make a healthy profit as long as I could

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Speaker 1: buy the components at cost. If I could find a

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Speaker 1: source for that. Now, uh, he knew that this was

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Speaker 1: going to be a potentially lucrative business. He also knew

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Speaker 1: that a lot of people wanted a computer, but they

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Speaker 1: weren't really confident in their ability to assemble a machine themselves,

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Speaker 1: so they lacked the knowledge or the confidence to put

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Speaker 1: together a computer. So this is where he could slip in.

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Speaker 1: He wasn't quite ready to jump into that world just yet,

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Speaker 1: so he continued his focus on upgrade kits to turn

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Speaker 1: basic computers into high performing machines. But he already knew

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Speaker 1: where he wanted to go and to expand into a

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Speaker 1: humbling actual computers in the future. So while he was

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Speaker 1: a freshman in college, he began to set up a

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Speaker 1: business in which he would upgrade computers for other people,

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Speaker 1: mostly friends and associates. But then word got out and

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Speaker 1: he started to get other people asking him to do

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Speaker 1: this sort of thing. He got advice and guidance from

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Speaker 1: a guy named George Kozmetski, who had co founded Teleedne

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Speaker 1: Incorporated and was then acting as dean of the University

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Speaker 1: of Texas College of Business Administration. Dell would end up

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Speaker 1: taking a thousand dollars out of his savings or from

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Speaker 1: his family, depending upon the version of the story you

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Speaker 1: come across, because I've seen both, and he used that

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Speaker 1: to fund a new startup business and he called it

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Speaker 1: PCs Limited. And this started in January. This is the

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Speaker 1: date to which Dell traces its history that PCs Limited

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Speaker 1: was the company that would become Dell Computers or Dell

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Speaker 1: Technologies these days. Dell ended up upgrading those computers they

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Speaker 1: knew for the people at the University of Texas, and

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Speaker 1: then he differentiated himself from the various computer stores by

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Speaker 1: emphasizing low prices and personal customer service. So if someone

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Speaker 1: had a problem with something, they could call him and

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Speaker 1: he would walk them through and fix the issue. Uh.

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Speaker 1: Soon the word got around about this Dell guy and

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Speaker 1: the computers that he could help build, and he started

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Speaker 1: getting more orders and making more money. He began to

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Speaker 1: hire a few employees to help with the work. He

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Speaker 1: was actually getting more orders than he could fill personally,

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Speaker 1: and soon he was making about twenty five thousand dollars

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Speaker 1: per month. At that rate, it seems silly to stay

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Speaker 1: in college and get a medical degree. He was already

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Speaker 1: on his way to a very successful career, so Michael

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Speaker 1: Dell dropped out of college to focus on his business

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Speaker 1: at the age of nineteen. At the end of nineteen

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Speaker 1: eighty four, after just one year in business and focusing

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Speaker 1: pretty much exclusively on selling and installing upgrade kits, not

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Speaker 1: full computers, PCs Limited had made about six million dollars

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Speaker 1: in sales. Six million dollars in its first year as

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Speaker 1: a college dropout, not bad, according to the company's own timeline.

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Speaker 1: The following year, PCs Limited would produce its first computer,

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Speaker 1: building it completely from the ground up, but assembled from

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Speaker 1: purchased components, so they weren't manufacturing the various parts of

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Speaker 1: the computer. They were sourcing them from other UH manufacturers,

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Speaker 1: so it was not an upgrade kit, it was an

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Speaker 1: actual computer, and Dell was able to benefit from a

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Speaker 1: few choices that IBM had made when it introduced its

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Speaker 1: personal computer strategy back in one. I covered this in

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Speaker 1: recent episodes, but i'll just give a quick overview. IBM

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Speaker 1: chose to go with a non proprietary approach with the

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Speaker 1: personal computer, and that set its strategy apart from Apple Computers,

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Speaker 1: which was very much in the proprietary realm. Right. So,

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Speaker 1: IBM used essentially a standard off the shelf components to

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Speaker 1: build its computer systems, and that meant that if you

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Speaker 1: had the knowledge and the time and access to those components,

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Speaker 1: you could build a machine that worked exactly the same

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Speaker 1: way as an IBM machine. Essentially, you're you're using the

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Speaker 1: same components or components of equivalent abilities to make a

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Speaker 1: computer that processes information in exactly the same way as

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Speaker 1: an IBM machine. Moreover, IBM had licensed a version of Basic,

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Speaker 1: the programming language, from Microsoft, but IBM did not get

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Speaker 1: an exclusive license, which meant anyone could license that operating

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Speaker 1: or that programming language. I should say, not an operating system,

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Speaker 1: so not only could you copy the hardware IBM was

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Speaker 1: making by buying these components and then building your own machine,

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Speaker 1: you could also run the same programming language, same version

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Speaker 1: of the programming language Basic on your machine, which meant

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Speaker 1: that any soft where that was built to run on

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Speaker 1: IBM computers would also run on the machine you built,

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Speaker 1: because it's essentially the same thing. Moreover, Dell was able

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Speaker 1: to get in touch with various IBM IBM inventory managers

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Speaker 1: and buy components directly from them because IBM had this

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Speaker 1: quota system for all of its components, and frequently inventory

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Speaker 1: managers found that their warehouses were getting filled with these

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Speaker 1: different components that didn't have any place to go. They

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Speaker 1: were just taking up space, so they could sell those

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Speaker 1: two other UH entities, including Michael Dell. So he's buying

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Speaker 1: the components for very low price, much lower than you

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Speaker 1: would if you went to a retail store, because the

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Speaker 1: retail store is going to mark it up quite a

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Speaker 1: bit in order to make its profit. He was able

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Speaker 1: to buy them for a low cost and then combine

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Speaker 1: them together to build these computers, and that was how

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Speaker 1: he was able to sell computers that could run IBM software,

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Speaker 1: but at a fraction of the price that it would

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Speaker 1: cost you if you want to go out and buy

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Speaker 1: an actual IBM computer. Uh this was the era of

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Speaker 1: the IBM clone. That's why we called it those things.

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Speaker 1: Uh So IBM was entrenched in the business world, as

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Speaker 1: I said earlier, which meant that there was a ton

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Speaker 1: of software already being made for IBM computers because you

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Speaker 1: already had an enormous potential customer base out there. If

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Speaker 1: you wanted to make software for business, you wanted to

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Speaker 1: do it for IBM computers because that's that was the

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Speaker 1: majority of the type of computer that was out there

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Speaker 1: in the business world. So by building a computer that

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Speaker 1: could also run that but at a fraction of the cost,

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Speaker 1: Michael Dell was starting to get orders from everybody because

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Speaker 1: everyone wanted to have a machine that could run IBM software,

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Speaker 1: but not everyone wanted to spend the premium price you

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Speaker 1: needed to get that sort of machine. And when I

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Speaker 1: say everyone, I don't just mean home users like people

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Speaker 1: like myself. I mean companies like small businesses, medium sized businesses,

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Speaker 1: businesses that wanted to invest in computer systems, but not

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Speaker 1: necessarily at the cost that it would require if they

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Speaker 1: went all in with a company like IBM. This was

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Speaker 1: suddenly a much more affordable option, so Michael Dell was

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Speaker 1: getting crazy numbers of orders. The first full computer produced

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Speaker 1: by Dell's company was called the Turbo PC and it

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Speaker 1: had an eight mega hurts Intel eight eight eight processor,

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Speaker 1: had a five and a quarter inch disk drive, and

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Speaker 1: it had ten hole megabytes of hard drive space. That's

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Speaker 1: according to the Dell company timeline. However, I should say

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Speaker 1: that I actually found examples of this computer. There's one

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Speaker 1: that's listed under the National Museum of American Histories website.

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Speaker 1: They have the PCs limited Turbo PC listed there UH,

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Speaker 1: and it has similar stats. It has the Intel eight processor,

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Speaker 1: but it only has a hard drive of three six kilobytes.

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Speaker 1: That's far less than the ten megabytes UH jested by Dell.

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Speaker 1: So I don't know where that disconnect is unless Michael

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Speaker 1: Dell was offering configurable computers, which is probably true. A

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Speaker 1: lot of Dell's money early on was made by up

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Speaker 1: selling a customer. So you would offer to build a

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Speaker 1: basic computer for a certain amount and then say, oh,

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Speaker 1: you know, if you spend a little bit more, we

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Speaker 1: can actually add this much more memory, this much more

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Speaker 1: hard drive space, another drive, maybe a printer or whatever

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Speaker 1: it might be. Because again he was able to sell

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Speaker 1: these for much lower than you would find in a

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Speaker 1: retail establishment. He would often be able to upsell because

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Speaker 1: people were they wanted a computer with those abilities, but

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Speaker 1: not have to pay the full price. It also had

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Speaker 1: six of RAM at a local area network port, so

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Speaker 1: you could actually network this with other computers with direct

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Speaker 1: connections there was no real Internet connectivity at that point,

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Speaker 1: and also had eight expansion slots so you could put

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Speaker 1: ancition cards in the machine. Uh, there are conflicting records

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Speaker 1: of what exactly was the first computer, but you get

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Speaker 1: two first in one episode this way, so that's a bonus, right.

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Speaker 1: The price for the original Turbo PC computer was seven

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Speaker 1: hundred nine dollars. Now, if you wanted to buy an

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Speaker 1: IBM PC that had a similar configuration, similar features, you

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Speaker 1: would be spending closer to undred to twenty five hundred dollars.

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Speaker 1: So it's no wonder the Dell computers were selling so well.

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Speaker 1: I'll have a lot more to say about the early

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Speaker 1: days of Dell computers, but first let's take a quick

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Speaker 1: break to thank our sponsor. I mentioned earlier that Michael

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Speaker 1: Dell helped set his company apart through customer service, and

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Speaker 1: one of the ways he did that was by offering

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Speaker 1: up the option for customers to order a computer over

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Speaker 1: the phone. He placed ads in computer magazines and was

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Speaker 1: directly marketing to his customer base, so you would buy

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Speaker 1: direct from Michael Dell. You wouldn't have to go again

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Speaker 1: to a store for this. They could also choose customized components,

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Speaker 1: so Dell's team would then assemble the computer based off

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Speaker 1: the customers preferences. And because Dell was buying components from

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Speaker 1: manufacturers directly, he was able to sell those computers as

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Speaker 1: a significant discount compared to other machines in the market.

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Speaker 1: And he also established a policy for next day at

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Speaker 1: home product assistance, and if you didn't like your computer,

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Speaker 1: you could return it for a refund, risk free. The

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Speaker 1: combination of his policies and the products helped propel Dell

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Speaker 1: to greater success. In addition, Dell was operating his company

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Speaker 1: almost like a boutique service. Rather than maintaining warehouses filled

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Speaker 1: with unsold computers, Dell tried to keep just enough stock

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Speaker 1: on hand to meet demand. That kept his inventory low,

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Speaker 1: and that meant it kept his expenses low because he

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Speaker 1: didn't have to rent out a warehouse to hold massive

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Speaker 1: amounts of inventory. Dell followed the Turbo PC with a

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Speaker 1: clone of the IBM PC A T. The A T

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Speaker 1: was IBMS second generation personal computer. It had an Intel

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Speaker 1: eight two eighty six microprocessor, the good old two eighty six.

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Speaker 1: The IBM version would set you back four thousand dollars.

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Speaker 1: Dell's version was priced at one thousand, nine five dollars,

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Speaker 1: which technically meant it was less than half of IBMS

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Speaker 1: price tag. By the end of nineteen eighty five, Dell

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Speaker 1: had hit sales of nearly forty million dollars, so a

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Speaker 1: big jump up from that six million dollars that had

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Speaker 1: made the first year. Now, grant that's in sales, not

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Speaker 1: in profit, right, you have to to figure out profit.

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Speaker 1: You have to subtract your expenses from your sales. And

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Speaker 1: because he was selling these a fairly low margin, it

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Speaker 1: wasn't like he was making huge amounts of money per sale,

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Speaker 1: you know, but still it was good business. In six

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Speaker 1: Dell would release the fastest performing personal computer on the

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Speaker 1: market at that time. It also featured a two eight

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Speaker 1: six microprocessor, but this one was clocked sixteen Mega hurts

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Speaker 1: and in the mid eighties that was considered wicked fast.

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Speaker 1: In fact, PC magazine compared it to an F eight

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Speaker 1: Team Jet, which might have been a touch hyperbolic in

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Speaker 1: my opinion, but one sentence in the review said, quote

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Speaker 1: after a few hours at sixteen mega hurts a lumbering

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Speaker 1: IBM A t feels like a dusty relic from a

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Speaker 1: computer museum. End quote. The review also said that the

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Speaker 1: computer specs were so impressive that it might even go

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Speaker 1: toe to toe with the upcoming next generation of computers,

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Speaker 1: which would be running on the eight three eight six microprocessor,

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Speaker 1: so that would be the next generation of Intel's processors

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Speaker 1: to six to three eight six. Dell saw his company

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Speaker 1: growing faster and faster, and he realized that he would

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Speaker 1: need someone at the helm who was more experienced dealing

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Speaker 1: with growing companies than he was, so he reached out

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Speaker 1: to an investment banker named Edward lee Walker to come

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Speaker 1: on board as the company president and the chief operating officer. Now,

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Speaker 1: lee Walker had graduated from Texas A and M University

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Speaker 1: in nineteen sixty three with a degree in physics, and

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Speaker 1: he followed that up with postgraduate studies in nuclear physics.

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Speaker 1: He actually received some grant funds from organizations like NASA

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Speaker 1: and the National Science Foundation to pursue his postgraduate work.

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Speaker 1: And he also got an MBA from Harvard in nineteen

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Speaker 1: sixty seven. So this is a smart guy we're talking about.

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Speaker 1: By nineteen eighty six, Walker was fifty one and he

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Speaker 1: was a venture capitalist. He would invest in growing companies,

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Speaker 1: and he agreed to come on board and began to

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Speaker 1: mentor Michael Dell, teaching the young man how to create

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Speaker 1: a workable business plan and how to manage a business

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Speaker 1: that was experiencing rapid growth. Walker would remain present until

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Speaker 1: nineteen ninety and he would retire due to health reasons.

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Speaker 1: And I never saw anything more specific than that, and frankly,

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Speaker 1: it's none of my business. Lee Walker would go on

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Speaker 1: to teach courses in business management at the University of

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Speaker 1: Texas at Austin, and he's also heavily involved in charitable

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Speaker 1: and community investment organizations. Pretty cool. Back to Dell. In seven,

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Speaker 1: the last full year the company would be called PCs Limited,

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Speaker 1: the company recruited a new marketing division from Tandy Corporation.

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Speaker 1: Tandy had started out as a leather goods company in

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Speaker 1: Fort Worth, Texas, way back in nineteen thirteen. But then,

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Speaker 1: through a series of acquisitions and diversified holdings, the company

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Speaker 1: would eventually enter into the world of electronics. It's not

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Speaker 1: the only leather company to have done this, which is

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Speaker 1: the interesting thing. But uh, Tandy produced the t R S,

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Speaker 1: a d personal computer some people would call it the

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Speaker 1: Trash eighty computer and a debut in nineteen seventy seven.

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Speaker 1: And so Tandy was one of the early computer companies

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Speaker 1: out there that was competing in the birth of the

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Speaker 1: home computer market. Tandy, Apple, the Commodore, those were like

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Speaker 1: the big computers that were competing in the early days.

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Speaker 1: Tandy was also the company that owned the Radio Shack

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Speaker 1: chain of stores, and eventually the company would rename itself

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Speaker 1: the Radio Shack Corporation. But let's go back to those

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Speaker 1: marketing executives from Tandy who came on over to PCs Limited.

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Speaker 1: They came over and they immediately began to lay the

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Speaker 1: groundwork to get Dell computers into more businesses, into more corporations.

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Speaker 1: The marketing executives began to hire a large corporate sales force,

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Speaker 1: and they began to establish resellers or retail establishment relationships.

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Speaker 1: So their efforts increased the profit margin for PCs Limited,

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Speaker 1: but Michael didn't like what he was seeing. Michael Dell

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Speaker 1: felt the department was trying to turn his company into

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Speaker 1: the next IBM, and Dell felt that the marketing department

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Speaker 1: did not understand his strategy of direct sales and marketing.

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Speaker 1: So Michael also didn't care for the large advertising budget

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Speaker 1: the team was requesting or how many sales people they

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Speaker 1: wanted to bring on, and so they clashed many times,

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Speaker 1: and by early nine most of those Tandy executives had

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Speaker 1: already either left the company of their own free will

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Speaker 1: or had been fired, so it didn't last very long.

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Speaker 1: The last computer marketed under the PC's Limited name was

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Speaker 1: a three eight six IBM clone clocked at sixteen mega

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Speaker 1: hurts with a megabyte of RAM and a one point

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Speaker 1: two megabyte floppy drive plus a forty megabyte hard drive,

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Speaker 1: and it cost four thousand, seven hundred ninety nine dollars,

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Speaker 1: a princely some, no doubt, but still about two thousand

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Speaker 1: dollars cheaper than similar computers from other companies, So while

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Speaker 1: it was still was really expensive, it was less expensive

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Speaker 1: than the competing machines that had comparable features. Toward the

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Speaker 1: end of nineteen eight seven, Dell opened its first international

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Speaker 1: subsidiary in the UK, and it did not take long

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Speaker 1: for the UK branch to start doing well. In one

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Speaker 1: month in nine the office sold about four million dollars

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Speaker 1: worth of computers, so did pretty well. Was a really

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Speaker 1: big year for the company. Not only did most of

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Speaker 1: those Tandy executives go by by that was the year

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Speaker 1: that PCs Limited officially changed its name to the Dell

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Speaker 1: Computer Corporation. The company opened its second subsidiary, this one

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Speaker 1: in Canada, and Michael Dell's company transformed from a privately

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Speaker 1: held corporation to a publicly traded one with an initial

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Speaker 1: public offering. So Dell Computers had sold a hundred fifty

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Speaker 1: nine million dollars worth of computers in nine seven, which

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Speaker 1: helped propel its I p O to a success. The

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Speaker 1: company sold about three and a half million shares at

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Speaker 1: eight dollars fifty cents per share, and they raised around

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Speaker 1: thirty million dollars and ended up with a valuation of

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Speaker 1: eighty five million dollars for the company. They did hit

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Speaker 1: a bit of a stumble with its planned IBM clone

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Speaker 1: for the PS Slash two computer system, so the PS

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Speaker 1: SLASH two was the third generation of IBM's personal computer hardware,

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Speaker 1: and it was available range of options, including ones that

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Speaker 1: took a more proprietary approach as opposed to using industry

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Speaker 1: standard architecture. Dell Computers announced they would offer a PS

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Speaker 1: slash two compatible machine not long after IBM system became

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Speaker 1: available in nine seven, but delays in design and production

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Speaker 1: that Dell did not have to didn't have that computer

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Speaker 1: ready to go for several months, So there are lots

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Speaker 1: and lots of delays. That actually was a pretty bad

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Speaker 1: black eye for Dell early on. Uh. Dell would then

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Speaker 1: end up luring away Glenn Henry, who had been a

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Speaker 1: computer scientist over at IBM. Henry worked on product development

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Speaker 1: for Dell, ended up tossing the design for the ps

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Speaker 1: slash two clone and starting over entirely. He said, this

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Speaker 1: is so far down the wrong path, we need to

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Speaker 1: go back to the drawing board. He also helped establish

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Speaker 1: Dell's R and D team, which eventually had a hundred

403
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Speaker 1: and fifty or so engineers in it under his guidance. Meanwhile,

404
00:23:54,960 --> 00:23:58,560
Speaker 1: the market was becoming more crowded. Japanese companies were beginning

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Speaker 1: to offer their own IBM cloned computers for very low prices,

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Speaker 1: and Dell faced some pretty tough competition in a space

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Speaker 1: that it had been dominant in for several years. And

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Speaker 1: when we come back, I'll talk about another problem Dell

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Speaker 1: faced in the late eighties, But first let's take another

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Speaker 1: quick break to thank our sponsor. When Dell Computers held

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Speaker 1: its i p O, computer demand was super high. In fact,

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Speaker 1: it was more than what the company could meet, and

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Speaker 1: so in an effort to scale up operations and take

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Speaker 1: advantage of demand, the company began to spend the cash

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Speaker 1: it raised during the i p O to secure warehouse

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Speaker 1: space and manufacturing capacity to actually build up inventory, something

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Speaker 1: it had never really done before. But that strategy ended

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Speaker 1: up coming back to hunt Dell because during the fourth

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Speaker 1: quarter of demand for computers actually went on the decline,

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Speaker 1: and that left Dell with full warehouses and little operating cash.

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Speaker 1: They'd spent all our money and their inventory wasn't moving anywhere.

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Speaker 1: So it was the type of situation Michael Dell had

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Speaker 1: worked really hard to avoid back when his company was

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Speaker 1: much smaller, and he tried to keep his inventory low.

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Speaker 1: But obviously when you get to a certain scale, it

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Speaker 1: becomes much more difficult to operate in that way. Even so,

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Speaker 1: with these events and these setbacks, the company was doing

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Speaker 1: pretty well overall. By night nine, Glenn Henry was working

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Speaker 1: on creating a new Dell computers capable of producing high

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Speaker 1: quality images with special graphics cards and better quality monitors,

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Speaker 1: which helped the company aim at high performing PCs. It

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Speaker 1: was a market that was starting to take off. It

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Speaker 1: wasn't just about processing power anymore, and that was also

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Speaker 1: about graphics and sound. Gamers were largely fueling this as well,

435
00:25:45,119 --> 00:25:47,159
Speaker 1: not to mention people who are working in media, so

436
00:25:47,880 --> 00:25:51,399
Speaker 1: Dell suddenly had a new market to aim for. They

437
00:25:51,480 --> 00:25:54,840
Speaker 1: also introduced their first laptop computer in nineteen eighty nine.

438
00:25:55,359 --> 00:25:58,320
Speaker 1: It was called the three sixteen LT and this was

439
00:25:58,400 --> 00:26:01,400
Speaker 1: a bit of a beast. Then again, all early laptops

440
00:26:01,440 --> 00:26:04,400
Speaker 1: were pretty big and clunky. This one had a three

441
00:26:04,440 --> 00:26:06,360
Speaker 1: and a half inch disk drive, which meant the whole

442
00:26:06,400 --> 00:26:09,080
Speaker 1: case was pretty thick in order to fit the drive

443
00:26:09,200 --> 00:26:12,960
Speaker 1: and its uh machinery. The laptop weight thirteen and a

444
00:26:13,000 --> 00:26:16,439
Speaker 1: half pounds, but that was only without a battery. If

445
00:26:16,440 --> 00:26:18,600
Speaker 1: you added a battery that would add several more pounds

446
00:26:18,680 --> 00:26:21,760
Speaker 1: to the device. It had a three six processor clocked

447
00:26:21,800 --> 00:26:24,520
Speaker 1: at sixteen Mega hurts and it came standard with one

448
00:26:24,560 --> 00:26:27,880
Speaker 1: megabyte of RAM, upgradable to eight. They also had built

449
00:26:27,880 --> 00:26:30,440
Speaker 1: in dial up modem. The screen size was nine and

450
00:26:30,480 --> 00:26:33,000
Speaker 1: a half inches on the diagonal with a resolution of

451
00:26:33,080 --> 00:26:36,480
Speaker 1: six forty by four eighty pixels. It was mono chromatic,

452
00:26:36,800 --> 00:26:39,720
Speaker 1: so no full color display yet, and you could buy

453
00:26:39,760 --> 00:26:44,280
Speaker 1: it for the princely sum yet again of thirty five dollars.

454
00:26:45,320 --> 00:26:48,240
Speaker 1: Portability can be yours for the low low price of

455
00:26:48,320 --> 00:26:50,639
Speaker 1: three thousand, five hundred dollars. And keep in mind this

456
00:26:50,840 --> 00:26:54,399
Speaker 1: is early nineties, so it would be much more expensive today.

457
00:26:54,840 --> 00:26:57,960
Speaker 1: The US operations for Dell hit two hundred fifty seven

458
00:26:58,040 --> 00:27:02,000
Speaker 1: point eight million dollars in aals. The UK division hit

459
00:27:02,200 --> 00:27:05,679
Speaker 1: forty million dollars in sales, so sales were going very

460
00:27:05,800 --> 00:27:09,359
Speaker 1: very well as the company scaled up. Michael Dell stressed

461
00:27:09,359 --> 00:27:12,800
Speaker 1: the importance of keeping the focus on customer service and experience,

462
00:27:12,880 --> 00:27:15,679
Speaker 1: which they were able to do for a few more years,

463
00:27:15,800 --> 00:27:19,119
Speaker 1: but that would start to slip not too long from

464
00:27:19,200 --> 00:27:23,080
Speaker 1: this point. Salespeople were supposed to take six weeks of

465
00:27:23,200 --> 00:27:26,359
Speaker 1: training before they could even start taking calls, and they

466
00:27:26,400 --> 00:27:29,560
Speaker 1: were trained also to help up sell options to customers.

467
00:27:29,600 --> 00:27:31,399
Speaker 1: Like I mentioned before, that's where Dell made a lot

468
00:27:31,440 --> 00:27:33,560
Speaker 1: of its money. So if you called into Dell to

469
00:27:33,680 --> 00:27:36,480
Speaker 1: order a baseline computer, chances are the salesperson you talked

470
00:27:36,520 --> 00:27:38,879
Speaker 1: to would bring up other options such as more memory

471
00:27:39,480 --> 00:27:43,360
Speaker 1: or filling up those expansion cards are slots with cards. Uh.

472
00:27:43,920 --> 00:27:46,600
Speaker 1: Dell was known for a very quick turnaround as well,

473
00:27:46,640 --> 00:27:49,280
Speaker 1: so that was a big selling point. Once a salesperson

474
00:27:49,400 --> 00:27:53,159
Speaker 1: turned in a customer order to the manufacturing facility, that

475
00:27:53,400 --> 00:27:56,159
Speaker 1: order would have to be filled within five days. So

476
00:27:56,920 --> 00:27:59,960
Speaker 1: keep in mind, these computers are built to specification. It's

477
00:28:00,440 --> 00:28:02,960
Speaker 1: you could order a base model and you would get

478
00:28:03,000 --> 00:28:05,159
Speaker 1: it just as fast as you would if you decided

479
00:28:05,200 --> 00:28:08,440
Speaker 1: to add some bells and whistles to it. So it

480
00:28:08,560 --> 00:28:10,520
Speaker 1: was a very different approach than what you would find

481
00:28:10,560 --> 00:28:12,320
Speaker 1: if you just walked into a store and bought a

482
00:28:12,400 --> 00:28:15,399
Speaker 1: computer off the shelf. Dell was also taking another stab

483
00:28:15,520 --> 00:28:18,480
Speaker 1: at the corporate world. The company began to make servers

484
00:28:18,640 --> 00:28:21,879
Speaker 1: for Anderson Consulting and other big clients. By the end

485
00:28:21,920 --> 00:28:26,439
Speaker 1: of nineteen ninety, about of Dell's sales came from corporate clients,

486
00:28:26,800 --> 00:28:30,800
Speaker 1: and in total, sales equaled five forty six million dollars

487
00:28:31,240 --> 00:28:34,560
Speaker 1: and the company was shooting up the ranks among PC manufacturers.

488
00:28:34,600 --> 00:28:38,120
Speaker 1: In nine, it had ranked number twenty two out of

489
00:28:38,160 --> 00:28:41,720
Speaker 1: all companies computer companies. In nineteen ninety one year later

490
00:28:42,320 --> 00:28:45,360
Speaker 1: it had shot up to number six. One of the

491
00:28:45,440 --> 00:28:49,400
Speaker 1: first systems Dell produced for corporations was the Dell System

492
00:28:49,600 --> 00:28:53,200
Speaker 1: T E series, such as the four five T E

493
00:28:53,680 --> 00:28:56,640
Speaker 1: and the four thirty three T E. These boasted the

494
00:28:56,760 --> 00:29:00,360
Speaker 1: four eighty six processor, which was the newest model from Tell,

495
00:29:01,000 --> 00:29:03,720
Speaker 1: and the higher end four thirty three T E model

496
00:29:03,800 --> 00:29:08,520
Speaker 1: sold for twelve thousand, one hundred nine nine dollars, which

497
00:29:08,720 --> 00:29:11,040
Speaker 1: is a lot of money, but it was still less

498
00:29:11,080 --> 00:29:15,480
Speaker 1: than half of what Compact was charging for its similarly

499
00:29:15,600 --> 00:29:19,200
Speaker 1: powerful FOR eight six thirty three server, which had a

500
00:29:19,240 --> 00:29:22,200
Speaker 1: price tag of thirty thousand dollars. So while it was

501
00:29:22,240 --> 00:29:25,520
Speaker 1: an incredibly expensive machine that would be dwarfed by even

502
00:29:25,600 --> 00:29:29,120
Speaker 1: a budget PC today, it was still very affordable compared

503
00:29:29,200 --> 00:29:32,440
Speaker 1: to the competition. Dell also opened up a manufacturing center

504
00:29:32,520 --> 00:29:36,240
Speaker 1: in Limerick, Ireland in nineteen nine to increase its production capacity,

505
00:29:36,520 --> 00:29:39,640
Speaker 1: specifically in order to serve markets in Europe and Africa

506
00:29:39,760 --> 00:29:43,680
Speaker 1: more readily. And despite the increase in sales and despite

507
00:29:43,720 --> 00:29:47,560
Speaker 1: growing so rapidly. The company's actual profits were not quite

508
00:29:47,720 --> 00:29:51,440
Speaker 1: as impressive. Dell had lower profit margins than some other

509
00:29:51,560 --> 00:29:55,840
Speaker 1: manufacturing companies, and in nineteen nine, Dell produced too many

510
00:29:55,920 --> 00:29:58,600
Speaker 1: memory chips and was unable to sell as many as

511
00:29:58,640 --> 00:30:01,640
Speaker 1: the company had projected. Plus it had to cancel a

512
00:30:01,720 --> 00:30:05,840
Speaker 1: big project that would have seen Dell produce workstations for companies.

513
00:30:06,320 --> 00:30:10,880
Speaker 1: Those setbacks whittled the actual profit for Dell in down

514
00:30:10,960 --> 00:30:15,560
Speaker 1: to five million dollars. It's still pretty impressive, but when

515
00:30:15,600 --> 00:30:18,080
Speaker 1: you view it against the more than five hundred forty

516
00:30:18,160 --> 00:30:23,000
Speaker 1: million dollars in sales, questions have to be asked. If

517
00:30:23,040 --> 00:30:25,920
Speaker 1: you sell five forty million dollars worth of stuff, but

518
00:30:26,040 --> 00:30:27,880
Speaker 1: at the end of the day your take home is

519
00:30:27,920 --> 00:30:31,600
Speaker 1: only five million, people start asking questions like where did

520
00:30:31,640 --> 00:30:33,040
Speaker 1: all the rest of that money have to go to?

521
00:30:33,440 --> 00:30:36,960
Speaker 1: How much are your operations costing? But in this this

522
00:30:37,080 --> 00:30:40,560
Speaker 1: particular year had a lot of hard things hit the company.

523
00:30:41,720 --> 00:30:44,040
Speaker 1: Was also when Lee Walker stepped down as president and

524
00:30:44,160 --> 00:30:47,640
Speaker 1: CEO of Dell Computers, Michael Dell reached out to another

525
00:30:47,720 --> 00:30:52,040
Speaker 1: executive named Morton Meyerson to take over the company. Meyerson

526
00:30:52,320 --> 00:30:56,160
Speaker 1: had previously led the company Electronic Data Systems, which was

527
00:30:56,360 --> 00:31:00,320
Speaker 1: founded by former presidential hopeful Ross Perot back in eighteen

528
00:31:00,400 --> 00:31:04,280
Speaker 1: sixty two. Meyerson had led Electronic Data Systems from nineteen

529
00:31:04,320 --> 00:31:08,160
Speaker 1: seventy nine to nineteen eight seven and retired three years

530
00:31:08,280 --> 00:31:11,920
Speaker 1: after General Motors had Required acquired rather d E. D

531
00:31:12,160 --> 00:31:16,000
Speaker 1: S for two point five billion dollars. Myerson came in

532
00:31:16,120 --> 00:31:19,360
Speaker 1: originally to help Dell transition to the next phase UH

533
00:31:19,440 --> 00:31:22,400
Speaker 1: and had successfully held together during an explosive period of growth.

534
00:31:22,440 --> 00:31:25,959
Speaker 1: Now the company needed to transition into a large corporation.

535
00:31:26,400 --> 00:31:29,800
Speaker 1: Dell Computers was transforming in many ways around this time.

536
00:31:29,840 --> 00:31:32,400
Speaker 1: While the company had begun as a direct sales computer

537
00:31:32,520 --> 00:31:36,680
Speaker 1: company aiming at individual customers and corporations, now the emphasis

538
00:31:36,880 --> 00:31:40,560
Speaker 1: was really shifting to those larger clients like big companies

539
00:31:40,600 --> 00:31:44,360
Speaker 1: and government agencies, And starting in nineteen ninety, Dell began

540
00:31:44,440 --> 00:31:48,600
Speaker 1: to explore options by dealing with resellers, those retail establishments,

541
00:31:48,640 --> 00:31:53,880
Speaker 1: specifically ones like Softwarehouse Superstores which later changed its name

542
00:31:53,920 --> 00:31:58,120
Speaker 1: to comp us A Walmart was another one, Sam's Club Staples,

543
00:31:58,720 --> 00:32:00,600
Speaker 1: and I'm sure you all know the US. But the

544
00:32:00,720 --> 00:32:03,720
Speaker 1: way that reselling works is you have a merchant or

545
00:32:03,760 --> 00:32:07,360
Speaker 1: a company they end up buying computers from a manufacturer

546
00:32:07,400 --> 00:32:09,960
Speaker 1: at a certain price. They agree upon the price, so

547
00:32:10,280 --> 00:32:14,160
Speaker 1: the reseller ends up buying those machines. The reseller then

548
00:32:14,240 --> 00:32:18,280
Speaker 1: sells those machines to customers, UH, typically at a markup.

549
00:32:18,680 --> 00:32:21,360
Speaker 1: You could sell them for at cost, but then you're

550
00:32:21,360 --> 00:32:24,120
Speaker 1: not making any profit. And unless you're doing it in

551
00:32:24,240 --> 00:32:26,480
Speaker 1: a way to try and convince the customer to buy

552
00:32:26,600 --> 00:32:29,240
Speaker 1: other stuff that is marked up for a profit, it

553
00:32:29,320 --> 00:32:33,760
Speaker 1: doesn't make good business sense. So the problem was, however,

554
00:32:34,400 --> 00:32:38,720
Speaker 1: it would eventually prompt the company to reconsider its relationship

555
00:32:38,800 --> 00:32:42,760
Speaker 1: with these retailers in because profit margins were getting really

556
00:32:42,880 --> 00:32:45,840
Speaker 1: thin for Dell, and part of that was because of

557
00:32:45,920 --> 00:32:49,240
Speaker 1: this this strategy to use resellers, but we'll get to

558
00:32:49,720 --> 00:32:53,200
Speaker 1: that bit in our next episode. Around this time, in

559
00:32:53,240 --> 00:32:56,320
Speaker 1: the early nineteen nineties, the PC market was in trouble

560
00:32:56,720 --> 00:32:59,720
Speaker 1: for the most part. There was an economic recession going

561
00:32:59,800 --> 00:33:02,320
Speaker 1: on in the world, and consumers had less money to

562
00:33:02,400 --> 00:33:05,520
Speaker 1: spend on expensive computers. So some of the big names

563
00:33:05,640 --> 00:33:09,680
Speaker 1: like Apple and IBM, we're having their own crises brought

564
00:33:09,720 --> 00:33:14,240
Speaker 1: about by various questionable decisions. But Dell Computers was actually

565
00:33:14,280 --> 00:33:16,800
Speaker 1: coming out ahead because the company had been focused on

566
00:33:17,000 --> 00:33:21,080
Speaker 1: comparably powerful computers at a much lower price than competitors

567
00:33:21,120 --> 00:33:25,000
Speaker 1: would offer. So people still needed computers, they just couldn't

568
00:33:25,720 --> 00:33:28,800
Speaker 1: shell out the big bucks for the brands front like

569
00:33:28,960 --> 00:33:32,040
Speaker 1: Compact or Apple or IBM, So Dell continued to do

570
00:33:32,160 --> 00:33:35,880
Speaker 1: pretty well during that recession, at least at first. In

571
00:33:37,080 --> 00:33:40,360
Speaker 1: Fortune magazine would name Dell Computers among the Fortune five

572
00:33:40,480 --> 00:33:43,960
Speaker 1: hundred list. That list ranks the five hundred largest US

573
00:33:44,040 --> 00:33:48,240
Speaker 1: corporations according to total revenue for the most recent fiscal

574
00:33:48,400 --> 00:33:51,560
Speaker 1: year for those companies. Dell appeared on it for the

575
00:33:51,600 --> 00:33:55,400
Speaker 1: first time in and that made Michael Dell the youngest

576
00:33:55,680 --> 00:33:59,240
Speaker 1: CEO of a Fortune five hundred company. He was twenty

577
00:33:59,400 --> 00:34:02,240
Speaker 1: seven years old at that time. But things were not

578
00:34:02,400 --> 00:34:05,479
Speaker 1: necessarily going to go smoothly for Dell and his company

579
00:34:05,800 --> 00:34:08,759
Speaker 1: in the near future. That, my friends, is what we

580
00:34:08,880 --> 00:34:12,040
Speaker 1: call a cliffhanger. You'll have to join me for the

581
00:34:12,120 --> 00:34:16,160
Speaker 1: next episode to find out what happened to Dell, or

582
00:34:16,360 --> 00:34:18,760
Speaker 1: you know, read an article or something, but no, tune

583
00:34:18,800 --> 00:34:21,160
Speaker 1: into my episode. And if you guys have suggestions for

584
00:34:21,320 --> 00:34:23,600
Speaker 1: topics I should tackle in future episodes of Tech Stuff,

585
00:34:23,760 --> 00:34:26,719
Speaker 1: whether it's a company, a technology, a personality in tech.

586
00:34:27,000 --> 00:34:29,440
Speaker 1: Maybe there's someone I should interview or have on as

587
00:34:29,480 --> 00:34:32,239
Speaker 1: a guest host, send me a message. The email for

588
00:34:32,320 --> 00:34:35,960
Speaker 1: the show is text stuff at how stuff works dot com,

589
00:34:36,080 --> 00:34:38,560
Speaker 1: or drop me a line on Facebook or Twitter. The

590
00:34:38,600 --> 00:34:41,480
Speaker 1: handle for both of those is text stuff hs W.

591
00:34:42,200 --> 00:34:45,200
Speaker 1: Don't forget to follow us on Instagram and I'll talk

592
00:34:45,200 --> 00:34:53,600
Speaker 1: to you again really soon for more on this and

593
00:34:53,719 --> 00:34:56,480
Speaker 1: thousands of other topics. Because it has stuff works dot com.

594
00:35:00,719 --> 00:35:01,839
Speaker 1: Who wo