Speaker 1: Get in touch with technology with tech Stuff from how
Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer at
Speaker 1: how Stuff Works and I love all things tech. And
Speaker 1: recently tech news sites reported that Dell Computers was preparing
Speaker 1: to go public again, because once upon a time it
Speaker 1: was a publicly traded company and then it changed back
Speaker 1: into a privately held corporation, and in July two eighteen,
Speaker 1: it announced it was getting ready to go public again
Speaker 1: by the end of the year. And this bit of
Speaker 1: news prompted me to record these episodes about Dell Computers,
Speaker 1: where the company came from, how its path has led
Speaker 1: up to going public for a second time, and all
Speaker 1: the trials and tribulations along the way. So today we're
Speaker 1: going to start to explore the Dell story, and I
Speaker 1: could not resist using the dude, you got a Dell tagline.
Speaker 1: More on that in the second episode, but let's start
Speaker 1: at the very beginning. So on February nineteen sixty five,
Speaker 1: Michael Dell was born in Houston, Texas. His dad was
Speaker 1: an orthodontist and his mother was a stockbroker, and his
Speaker 1: parents wanted him to consider a job in medicine, but
Speaker 1: Michael would end up pursuing a very different career. And
Speaker 1: for one thing, Michael grew up just as personal computers
Speaker 1: were really becoming a big deal. Apple Computer was founded
Speaker 1: in nineteen seventy six when Michael was eleven years old,
Speaker 1: So that was something going on in the background while
Speaker 1: he was a kid. And meanwhile, he was learning a
Speaker 1: lot about business and finance, primarily from his mother, and
Speaker 1: he got to work early on. He thought it was interesting,
Speaker 1: this idea of making money, and he turned out to
Speaker 1: be really, really good at it, even as a little kid. Uh.
Speaker 1: He became a dishwasher for a Chinese restaurant when he
Speaker 1: was just twelve years old, and he used the money
Speaker 1: he earned to support a hobby he had. He had
Speaker 1: a hobby that had nothing to do with computers. It
Speaker 1: was being a philatelist. What the heck is a philatalist.
Speaker 1: It's a stamp collector. Technically, it's someone who studies stamps,
Speaker 1: but a lot of people use the terms interchangeably. Let's
Speaker 1: just call him a stamp collector. So he was collecting
Speaker 1: stamps and he started having an exchange. He would do
Speaker 1: exchanges and sell stamps and buy other stamps, and eventually
Speaker 1: he was able to make two thousand dollars, which is
Speaker 1: a huge amount of money for a little kid. And
Speaker 1: as a teenager he spent summers selling subscriptions for the
Speaker 1: Houston Post. He ditched the standard procedure, which was making
Speaker 1: cold calls, you know, just essentially going down the phone
Speaker 1: book and trying to call people at random. Um. He
Speaker 1: decided that wasn't very effective, so he created a new
Speaker 1: marketing strategy and it was really effective. He ended making
Speaker 1: eighteen thousand dollars in a year. So his first car
Speaker 1: that he bought was a BMW. He lives a different
Speaker 1: life than I do. He also bought an Apple to
Speaker 1: computer when he was fifteen, and he took it apart
Speaker 1: to see how it worked. He put it back together again.
Speaker 1: He would later buy an IBM PC and do the
Speaker 1: same to that, and he saw that IBM already had
Speaker 1: a big leg up when it came to computers in
Speaker 1: the business world. It was a very much entrenched company.
Speaker 1: In nineteen eighty three, upon the urging of his parents,
Speaker 1: Michael Dell enrolled in the University of Texas with the
Speaker 1: goal of being a premed student. So His whole thing
Speaker 1: was his following what his parents had told him to
Speaker 1: do go into premed He hadn't really determined what he
Speaker 1: was exactly going to specialize in. This was his freshman
Speaker 1: year in college, and in the meantime he kept turning
Speaker 1: his mind to entrepreneurial pursuits. He still had this love
Speaker 1: of business and ways of making money, and at first
Speaker 1: he began to assemble and sell upgrade AID kits for
Speaker 1: personal computers. So this was not about building a new
Speaker 1: machine from scratch, but rather getting the components together that
Speaker 1: could turn a standard PC into a more powerful machine
Speaker 1: with more features, So stuff like more memory, expansion cards,
Speaker 1: that kind of stuff to turn your basic computer into
Speaker 1: a higher performing machine. And he found out a lot
Speaker 1: of people wanted a personal computer, but many didn't want
Speaker 1: to spend the higher prices for a higher performing machine
Speaker 1: from the major companies, and those were selling their machines
Speaker 1: to retailers, right they were selling computers to retailers that
Speaker 1: then would mark up the machines even more, and so
Speaker 1: by the time your average consumer would go into a
Speaker 1: store to buy a computer, it would be very very expensive,
Speaker 1: especially if you wanted something like an IBM computer. They
Speaker 1: were selling their computers at a premium of like above cost,
Speaker 1: So none of the major companies were selling directly to consumers,
Speaker 1: and Michael Delfin, you doubt. Hey, what if I were
Speaker 1: able to do that? What if I were able to
Speaker 1: sell computers straight to customers and bypass all the retailers,
Speaker 1: cut out the middlemen. If I bought all the components
Speaker 1: myself and then built computers for people to their specifications,
Speaker 1: I could sell them for a much lower price and
Speaker 1: get make a healthy profit as long as I could
Speaker 1: buy the components at cost. If I could find a
Speaker 1: source for that. Now, uh, he knew that this was
Speaker 1: going to be a potentially lucrative business. He also knew
Speaker 1: that a lot of people wanted a computer, but they
Speaker 1: weren't really confident in their ability to assemble a machine themselves,
Speaker 1: so they lacked the knowledge or the confidence to put
Speaker 1: together a computer. So this is where he could slip in.
Speaker 1: He wasn't quite ready to jump into that world just yet,
Speaker 1: so he continued his focus on upgrade kits to turn
Speaker 1: basic computers into high performing machines. But he already knew
Speaker 1: where he wanted to go and to expand into a
Speaker 1: humbling actual computers in the future. So while he was
Speaker 1: a freshman in college, he began to set up a
Speaker 1: business in which he would upgrade computers for other people,
Speaker 1: mostly friends and associates. But then word got out and
Speaker 1: he started to get other people asking him to do
Speaker 1: this sort of thing. He got advice and guidance from
Speaker 1: a guy named George Kozmetski, who had co founded Teleedne
Speaker 1: Incorporated and was then acting as dean of the University
Speaker 1: of Texas College of Business Administration. Dell would end up
Speaker 1: taking a thousand dollars out of his savings or from
Speaker 1: his family, depending upon the version of the story you
Speaker 1: come across, because I've seen both, and he used that
Speaker 1: to fund a new startup business and he called it
Speaker 1: PCs Limited. And this started in January. This is the
Speaker 1: date to which Dell traces its history that PCs Limited
Speaker 1: was the company that would become Dell Computers or Dell
Speaker 1: Technologies these days. Dell ended up upgrading those computers they
Speaker 1: knew for the people at the University of Texas, and
Speaker 1: then he differentiated himself from the various computer stores by
Speaker 1: emphasizing low prices and personal customer service. So if someone
Speaker 1: had a problem with something, they could call him and
Speaker 1: he would walk them through and fix the issue. Uh.
Speaker 1: Soon the word got around about this Dell guy and
Speaker 1: the computers that he could help build, and he started
Speaker 1: getting more orders and making more money. He began to
Speaker 1: hire a few employees to help with the work. He
Speaker 1: was actually getting more orders than he could fill personally,
Speaker 1: and soon he was making about twenty five thousand dollars
Speaker 1: per month. At that rate, it seems silly to stay
Speaker 1: in college and get a medical degree. He was already
Speaker 1: on his way to a very successful career, so Michael
Speaker 1: Dell dropped out of college to focus on his business
Speaker 1: at the age of nineteen. At the end of nineteen
Speaker 1: eighty four, after just one year in business and focusing
Speaker 1: pretty much exclusively on selling and installing upgrade kits, not
Speaker 1: full computers, PCs Limited had made about six million dollars
Speaker 1: in sales. Six million dollars in its first year as
Speaker 1: a college dropout, not bad, according to the company's own timeline.
Speaker 1: The following year, PCs Limited would produce its first computer,
Speaker 1: building it completely from the ground up, but assembled from
Speaker 1: purchased components, so they weren't manufacturing the various parts of
Speaker 1: the computer. They were sourcing them from other UH manufacturers,
Speaker 1: so it was not an upgrade kit, it was an
Speaker 1: actual computer, and Dell was able to benefit from a
Speaker 1: few choices that IBM had made when it introduced its
Speaker 1: personal computer strategy back in one. I covered this in
Speaker 1: recent episodes, but i'll just give a quick overview. IBM
Speaker 1: chose to go with a non proprietary approach with the
Speaker 1: personal computer, and that set its strategy apart from Apple Computers,
Speaker 1: which was very much in the proprietary realm. Right. So,
Speaker 1: IBM used essentially a standard off the shelf components to
Speaker 1: build its computer systems, and that meant that if you
Speaker 1: had the knowledge and the time and access to those components,
Speaker 1: you could build a machine that worked exactly the same
Speaker 1: way as an IBM machine. Essentially, you're you're using the
Speaker 1: same components or components of equivalent abilities to make a
Speaker 1: computer that processes information in exactly the same way as
Speaker 1: an IBM machine. Moreover, IBM had licensed a version of Basic,
Speaker 1: the programming language, from Microsoft, but IBM did not get
Speaker 1: an exclusive license, which meant anyone could license that operating
Speaker 1: or that programming language. I should say, not an operating system,
Speaker 1: so not only could you copy the hardware IBM was
Speaker 1: making by buying these components and then building your own machine,
Speaker 1: you could also run the same programming language, same version
Speaker 1: of the programming language Basic on your machine, which meant
Speaker 1: that any soft where that was built to run on
Speaker 1: IBM computers would also run on the machine you built,
Speaker 1: because it's essentially the same thing. Moreover, Dell was able
Speaker 1: to get in touch with various IBM IBM inventory managers
Speaker 1: and buy components directly from them because IBM had this
Speaker 1: quota system for all of its components, and frequently inventory
Speaker 1: managers found that their warehouses were getting filled with these
Speaker 1: different components that didn't have any place to go. They
Speaker 1: were just taking up space, so they could sell those
Speaker 1: two other UH entities, including Michael Dell. So he's buying
Speaker 1: the components for very low price, much lower than you
Speaker 1: would if you went to a retail store, because the
Speaker 1: retail store is going to mark it up quite a
Speaker 1: bit in order to make its profit. He was able
Speaker 1: to buy them for a low cost and then combine
Speaker 1: them together to build these computers, and that was how
Speaker 1: he was able to sell computers that could run IBM software,
Speaker 1: but at a fraction of the price that it would
Speaker 1: cost you if you want to go out and buy
Speaker 1: an actual IBM computer. Uh this was the era of
Speaker 1: the IBM clone. That's why we called it those things.
Speaker 1: Uh So IBM was entrenched in the business world, as
Speaker 1: I said earlier, which meant that there was a ton
Speaker 1: of software already being made for IBM computers because you
Speaker 1: already had an enormous potential customer base out there. If
Speaker 1: you wanted to make software for business, you wanted to
Speaker 1: do it for IBM computers because that's that was the
Speaker 1: majority of the type of computer that was out there
Speaker 1: in the business world. So by building a computer that
Speaker 1: could also run that but at a fraction of the cost,
Speaker 1: Michael Dell was starting to get orders from everybody because
Speaker 1: everyone wanted to have a machine that could run IBM software,
Speaker 1: but not everyone wanted to spend the premium price you
Speaker 1: needed to get that sort of machine. And when I
Speaker 1: say everyone, I don't just mean home users like people
Speaker 1: like myself. I mean companies like small businesses, medium sized businesses,
Speaker 1: businesses that wanted to invest in computer systems, but not
Speaker 1: necessarily at the cost that it would require if they
Speaker 1: went all in with a company like IBM. This was
Speaker 1: suddenly a much more affordable option, so Michael Dell was
Speaker 1: getting crazy numbers of orders. The first full computer produced
Speaker 1: by Dell's company was called the Turbo PC and it
Speaker 1: had an eight mega hurts Intel eight eight eight processor,
Speaker 1: had a five and a quarter inch disk drive, and
Speaker 1: it had ten hole megabytes of hard drive space. That's
Speaker 1: according to the Dell company timeline. However, I should say
Speaker 1: that I actually found examples of this computer. There's one
Speaker 1: that's listed under the National Museum of American Histories website.
Speaker 1: They have the PCs limited Turbo PC listed there UH,
Speaker 1: and it has similar stats. It has the Intel eight processor,
Speaker 1: but it only has a hard drive of three six kilobytes.
Speaker 1: That's far less than the ten megabytes UH jested by Dell.
Speaker 1: So I don't know where that disconnect is unless Michael
Speaker 1: Dell was offering configurable computers, which is probably true. A
Speaker 1: lot of Dell's money early on was made by up
Speaker 1: selling a customer. So you would offer to build a
Speaker 1: basic computer for a certain amount and then say, oh,
Speaker 1: you know, if you spend a little bit more, we
Speaker 1: can actually add this much more memory, this much more
Speaker 1: hard drive space, another drive, maybe a printer or whatever
Speaker 1: it might be. Because again he was able to sell
Speaker 1: these for much lower than you would find in a
Speaker 1: retail establishment. He would often be able to upsell because
Speaker 1: people were they wanted a computer with those abilities, but
Speaker 1: not have to pay the full price. It also had
Speaker 1: six of RAM at a local area network port, so
Speaker 1: you could actually network this with other computers with direct
Speaker 1: connections there was no real Internet connectivity at that point,
Speaker 1: and also had eight expansion slots so you could put
Speaker 1: ancition cards in the machine. Uh, there are conflicting records
Speaker 1: of what exactly was the first computer, but you get
Speaker 1: two first in one episode this way, so that's a bonus, right.
Speaker 1: The price for the original Turbo PC computer was seven
Speaker 1: hundred nine dollars. Now, if you wanted to buy an
Speaker 1: IBM PC that had a similar configuration, similar features, you
Speaker 1: would be spending closer to undred to twenty five hundred dollars.
Speaker 1: So it's no wonder the Dell computers were selling so well.
Speaker 1: I'll have a lot more to say about the early
Speaker 1: days of Dell computers, but first let's take a quick
Speaker 1: break to thank our sponsor. I mentioned earlier that Michael
Speaker 1: Dell helped set his company apart through customer service, and
Speaker 1: one of the ways he did that was by offering
Speaker 1: up the option for customers to order a computer over
Speaker 1: the phone. He placed ads in computer magazines and was
Speaker 1: directly marketing to his customer base, so you would buy
Speaker 1: direct from Michael Dell. You wouldn't have to go again
Speaker 1: to a store for this. They could also choose customized components,
Speaker 1: so Dell's team would then assemble the computer based off
Speaker 1: the customers preferences. And because Dell was buying components from
Speaker 1: manufacturers directly, he was able to sell those computers as
Speaker 1: a significant discount compared to other machines in the market.
Speaker 1: And he also established a policy for next day at
Speaker 1: home product assistance, and if you didn't like your computer,
Speaker 1: you could return it for a refund, risk free. The
Speaker 1: combination of his policies and the products helped propel Dell
Speaker 1: to greater success. In addition, Dell was operating his company
Speaker 1: almost like a boutique service. Rather than maintaining warehouses filled
Speaker 1: with unsold computers, Dell tried to keep just enough stock
Speaker 1: on hand to meet demand. That kept his inventory low,
Speaker 1: and that meant it kept his expenses low because he
Speaker 1: didn't have to rent out a warehouse to hold massive
Speaker 1: amounts of inventory. Dell followed the Turbo PC with a
Speaker 1: clone of the IBM PC A T. The A T
Speaker 1: was IBMS second generation personal computer. It had an Intel
Speaker 1: eight two eighty six microprocessor, the good old two eighty six.
Speaker 1: The IBM version would set you back four thousand dollars.
Speaker 1: Dell's version was priced at one thousand, nine five dollars,
Speaker 1: which technically meant it was less than half of IBMS
Speaker 1: price tag. By the end of nineteen eighty five, Dell
Speaker 1: had hit sales of nearly forty million dollars, so a
Speaker 1: big jump up from that six million dollars that had
Speaker 1: made the first year. Now, grant that's in sales, not
Speaker 1: in profit, right, you have to to figure out profit.
Speaker 1: You have to subtract your expenses from your sales. And
Speaker 1: because he was selling these a fairly low margin, it
Speaker 1: wasn't like he was making huge amounts of money per sale,
Speaker 1: you know, but still it was good business. In six
Speaker 1: Dell would release the fastest performing personal computer on the
Speaker 1: market at that time. It also featured a two eight
Speaker 1: six microprocessor, but this one was clocked sixteen Mega hurts
Speaker 1: and in the mid eighties that was considered wicked fast.
Speaker 1: In fact, PC magazine compared it to an F eight
Speaker 1: Team Jet, which might have been a touch hyperbolic in
Speaker 1: my opinion, but one sentence in the review said, quote
Speaker 1: after a few hours at sixteen mega hurts a lumbering
Speaker 1: IBM A t feels like a dusty relic from a
Speaker 1: computer museum. End quote. The review also said that the
Speaker 1: computer specs were so impressive that it might even go
Speaker 1: toe to toe with the upcoming next generation of computers,
Speaker 1: which would be running on the eight three eight six microprocessor,
Speaker 1: so that would be the next generation of Intel's processors
Speaker 1: to six to three eight six. Dell saw his company
Speaker 1: growing faster and faster, and he realized that he would
Speaker 1: need someone at the helm who was more experienced dealing
Speaker 1: with growing companies than he was, so he reached out
Speaker 1: to an investment banker named Edward lee Walker to come
Speaker 1: on board as the company president and the chief operating officer. Now,
Speaker 1: lee Walker had graduated from Texas A and M University
Speaker 1: in nineteen sixty three with a degree in physics, and
Speaker 1: he followed that up with postgraduate studies in nuclear physics.
Speaker 1: He actually received some grant funds from organizations like NASA
Speaker 1: and the National Science Foundation to pursue his postgraduate work.
Speaker 1: And he also got an MBA from Harvard in nineteen
Speaker 1: sixty seven. So this is a smart guy we're talking about.
Speaker 1: By nineteen eighty six, Walker was fifty one and he
Speaker 1: was a venture capitalist. He would invest in growing companies,
Speaker 1: and he agreed to come on board and began to
Speaker 1: mentor Michael Dell, teaching the young man how to create
Speaker 1: a workable business plan and how to manage a business
Speaker 1: that was experiencing rapid growth. Walker would remain present until
Speaker 1: nineteen ninety and he would retire due to health reasons.
Speaker 1: And I never saw anything more specific than that, and frankly,
Speaker 1: it's none of my business. Lee Walker would go on
Speaker 1: to teach courses in business management at the University of
Speaker 1: Texas at Austin, and he's also heavily involved in charitable
Speaker 1: and community investment organizations. Pretty cool. Back to Dell. In seven,
Speaker 1: the last full year the company would be called PCs Limited,
Speaker 1: the company recruited a new marketing division from Tandy Corporation.
Speaker 1: Tandy had started out as a leather goods company in
Speaker 1: Fort Worth, Texas, way back in nineteen thirteen. But then,
Speaker 1: through a series of acquisitions and diversified holdings, the company
Speaker 1: would eventually enter into the world of electronics. It's not
Speaker 1: the only leather company to have done this, which is
Speaker 1: the interesting thing. But uh, Tandy produced the t R S,
Speaker 1: a d personal computer some people would call it the
Speaker 1: Trash eighty computer and a debut in nineteen seventy seven.
Speaker 1: And so Tandy was one of the early computer companies
Speaker 1: out there that was competing in the birth of the
Speaker 1: home computer market. Tandy, Apple, the Commodore, those were like
Speaker 1: the big computers that were competing in the early days.
Speaker 1: Tandy was also the company that owned the Radio Shack
Speaker 1: chain of stores, and eventually the company would rename itself
Speaker 1: the Radio Shack Corporation. But let's go back to those
Speaker 1: marketing executives from Tandy who came on over to PCs Limited.
Speaker 1: They came over and they immediately began to lay the
Speaker 1: groundwork to get Dell computers into more businesses, into more corporations.
Speaker 1: The marketing executives began to hire a large corporate sales force,
Speaker 1: and they began to establish resellers or retail establishment relationships.
Speaker 1: So their efforts increased the profit margin for PCs Limited,
Speaker 1: but Michael didn't like what he was seeing. Michael Dell
Speaker 1: felt the department was trying to turn his company into
Speaker 1: the next IBM, and Dell felt that the marketing department
Speaker 1: did not understand his strategy of direct sales and marketing.
Speaker 1: So Michael also didn't care for the large advertising budget
Speaker 1: the team was requesting or how many sales people they
Speaker 1: wanted to bring on, and so they clashed many times,
Speaker 1: and by early nine most of those Tandy executives had
Speaker 1: already either left the company of their own free will
Speaker 1: or had been fired, so it didn't last very long.
Speaker 1: The last computer marketed under the PC's Limited name was
Speaker 1: a three eight six IBM clone clocked at sixteen mega
Speaker 1: hurts with a megabyte of RAM and a one point
Speaker 1: two megabyte floppy drive plus a forty megabyte hard drive,
Speaker 1: and it cost four thousand, seven hundred ninety nine dollars,
Speaker 1: a princely some, no doubt, but still about two thousand
Speaker 1: dollars cheaper than similar computers from other companies, So while
Speaker 1: it was still was really expensive, it was less expensive
Speaker 1: than the competing machines that had comparable features. Toward the
Speaker 1: end of nineteen eight seven, Dell opened its first international
Speaker 1: subsidiary in the UK, and it did not take long
Speaker 1: for the UK branch to start doing well. In one
Speaker 1: month in nine the office sold about four million dollars
Speaker 1: worth of computers, so did pretty well. Was a really
Speaker 1: big year for the company. Not only did most of
Speaker 1: those Tandy executives go by by that was the year
Speaker 1: that PCs Limited officially changed its name to the Dell
Speaker 1: Computer Corporation. The company opened its second subsidiary, this one
Speaker 1: in Canada, and Michael Dell's company transformed from a privately
Speaker 1: held corporation to a publicly traded one with an initial
Speaker 1: public offering. So Dell Computers had sold a hundred fifty
Speaker 1: nine million dollars worth of computers in nine seven, which
Speaker 1: helped propel its I p O to a success. The
Speaker 1: company sold about three and a half million shares at
Speaker 1: eight dollars fifty cents per share, and they raised around
Speaker 1: thirty million dollars and ended up with a valuation of
Speaker 1: eighty five million dollars for the company. They did hit
Speaker 1: a bit of a stumble with its planned IBM clone
Speaker 1: for the PS Slash two computer system, so the PS
Speaker 1: SLASH two was the third generation of IBM's personal computer hardware,
Speaker 1: and it was available range of options, including ones that
Speaker 1: took a more proprietary approach as opposed to using industry
Speaker 1: standard architecture. Dell Computers announced they would offer a PS
Speaker 1: slash two compatible machine not long after IBM system became
Speaker 1: available in nine seven, but delays in design and production
Speaker 1: that Dell did not have to didn't have that computer
Speaker 1: ready to go for several months, So there are lots
Speaker 1: and lots of delays. That actually was a pretty bad
Speaker 1: black eye for Dell early on. Uh. Dell would then
Speaker 1: end up luring away Glenn Henry, who had been a
Speaker 1: computer scientist over at IBM. Henry worked on product development
Speaker 1: for Dell, ended up tossing the design for the ps
Speaker 1: slash two clone and starting over entirely. He said, this
Speaker 1: is so far down the wrong path, we need to
Speaker 1: go back to the drawing board. He also helped establish
Speaker 1: Dell's R and D team, which eventually had a hundred
Speaker 1: and fifty or so engineers in it under his guidance. Meanwhile,
Speaker 1: the market was becoming more crowded. Japanese companies were beginning
Speaker 1: to offer their own IBM cloned computers for very low prices,
Speaker 1: and Dell faced some pretty tough competition in a space
Speaker 1: that it had been dominant in for several years. And
Speaker 1: when we come back, I'll talk about another problem Dell
Speaker 1: faced in the late eighties, But first let's take another
Speaker 1: quick break to thank our sponsor. When Dell Computers held
Speaker 1: its i p O, computer demand was super high. In fact,
Speaker 1: it was more than what the company could meet, and
Speaker 1: so in an effort to scale up operations and take
Speaker 1: advantage of demand, the company began to spend the cash
Speaker 1: it raised during the i p O to secure warehouse
Speaker 1: space and manufacturing capacity to actually build up inventory, something
Speaker 1: it had never really done before. But that strategy ended
Speaker 1: up coming back to hunt Dell because during the fourth
Speaker 1: quarter of demand for computers actually went on the decline,
Speaker 1: and that left Dell with full warehouses and little operating cash.
Speaker 1: They'd spent all our money and their inventory wasn't moving anywhere.
Speaker 1: So it was the type of situation Michael Dell had
Speaker 1: worked really hard to avoid back when his company was
Speaker 1: much smaller, and he tried to keep his inventory low.
Speaker 1: But obviously when you get to a certain scale, it
Speaker 1: becomes much more difficult to operate in that way. Even so,
Speaker 1: with these events and these setbacks, the company was doing
Speaker 1: pretty well overall. By night nine, Glenn Henry was working
Speaker 1: on creating a new Dell computers capable of producing high
Speaker 1: quality images with special graphics cards and better quality monitors,
Speaker 1: which helped the company aim at high performing PCs. It
Speaker 1: was a market that was starting to take off. It
Speaker 1: wasn't just about processing power anymore, and that was also
Speaker 1: about graphics and sound. Gamers were largely fueling this as well,
Speaker 1: not to mention people who are working in media, so
Speaker 1: Dell suddenly had a new market to aim for. They
Speaker 1: also introduced their first laptop computer in nineteen eighty nine.
Speaker 1: It was called the three sixteen LT and this was
Speaker 1: a bit of a beast. Then again, all early laptops
Speaker 1: were pretty big and clunky. This one had a three
Speaker 1: and a half inch disk drive, which meant the whole
Speaker 1: case was pretty thick in order to fit the drive
Speaker 1: and its uh machinery. The laptop weight thirteen and a
Speaker 1: half pounds, but that was only without a battery. If
Speaker 1: you added a battery that would add several more pounds
Speaker 1: to the device. It had a three six processor clocked
Speaker 1: at sixteen Mega hurts and it came standard with one
Speaker 1: megabyte of RAM, upgradable to eight. They also had built
Speaker 1: in dial up modem. The screen size was nine and
Speaker 1: a half inches on the diagonal with a resolution of
Speaker 1: six forty by four eighty pixels. It was mono chromatic,
Speaker 1: so no full color display yet, and you could buy
Speaker 1: it for the princely sum yet again of thirty five dollars.
Speaker 1: Portability can be yours for the low low price of
Speaker 1: three thousand, five hundred dollars. And keep in mind this
Speaker 1: is early nineties, so it would be much more expensive today.
Speaker 1: The US operations for Dell hit two hundred fifty seven
Speaker 1: point eight million dollars in aals. The UK division hit
Speaker 1: forty million dollars in sales, so sales were going very
Speaker 1: very well as the company scaled up. Michael Dell stressed
Speaker 1: the importance of keeping the focus on customer service and experience,
Speaker 1: which they were able to do for a few more years,
Speaker 1: but that would start to slip not too long from
Speaker 1: this point. Salespeople were supposed to take six weeks of
Speaker 1: training before they could even start taking calls, and they
Speaker 1: were trained also to help up sell options to customers.
Speaker 1: Like I mentioned before, that's where Dell made a lot
Speaker 1: of its money. So if you called into Dell to
Speaker 1: order a baseline computer, chances are the salesperson you talked
Speaker 1: to would bring up other options such as more memory
Speaker 1: or filling up those expansion cards are slots with cards. Uh.
Speaker 1: Dell was known for a very quick turnaround as well,
Speaker 1: so that was a big selling point. Once a salesperson
Speaker 1: turned in a customer order to the manufacturing facility, that
Speaker 1: order would have to be filled within five days. So
Speaker 1: keep in mind, these computers are built to specification. It's
Speaker 1: you could order a base model and you would get
Speaker 1: it just as fast as you would if you decided
Speaker 1: to add some bells and whistles to it. So it
Speaker 1: was a very different approach than what you would find
Speaker 1: if you just walked into a store and bought a
Speaker 1: computer off the shelf. Dell was also taking another stab
Speaker 1: at the corporate world. The company began to make servers
Speaker 1: for Anderson Consulting and other big clients. By the end
Speaker 1: of nineteen ninety, about of Dell's sales came from corporate clients,
Speaker 1: and in total, sales equaled five forty six million dollars
Speaker 1: and the company was shooting up the ranks among PC manufacturers.
Speaker 1: In nine, it had ranked number twenty two out of
Speaker 1: all companies computer companies. In nineteen ninety one year later
Speaker 1: it had shot up to number six. One of the
Speaker 1: first systems Dell produced for corporations was the Dell System
Speaker 1: T E series, such as the four five T E
Speaker 1: and the four thirty three T E. These boasted the
Speaker 1: four eighty six processor, which was the newest model from Tell,
Speaker 1: and the higher end four thirty three T E model
Speaker 1: sold for twelve thousand, one hundred nine nine dollars, which
Speaker 1: is a lot of money, but it was still less
Speaker 1: than half of what Compact was charging for its similarly
Speaker 1: powerful FOR eight six thirty three server, which had a
Speaker 1: price tag of thirty thousand dollars. So while it was
Speaker 1: an incredibly expensive machine that would be dwarfed by even
Speaker 1: a budget PC today, it was still very affordable compared
Speaker 1: to the competition. Dell also opened up a manufacturing center
Speaker 1: in Limerick, Ireland in nineteen nine to increase its production capacity,
Speaker 1: specifically in order to serve markets in Europe and Africa
Speaker 1: more readily. And despite the increase in sales and despite
Speaker 1: growing so rapidly. The company's actual profits were not quite
Speaker 1: as impressive. Dell had lower profit margins than some other
Speaker 1: manufacturing companies, and in nineteen nine, Dell produced too many
Speaker 1: memory chips and was unable to sell as many as
Speaker 1: the company had projected. Plus it had to cancel a
Speaker 1: big project that would have seen Dell produce workstations for companies.
Speaker 1: Those setbacks whittled the actual profit for Dell in down
Speaker 1: to five million dollars. It's still pretty impressive, but when
Speaker 1: you view it against the more than five hundred forty
Speaker 1: million dollars in sales, questions have to be asked. If
Speaker 1: you sell five forty million dollars worth of stuff, but
Speaker 1: at the end of the day your take home is
Speaker 1: only five million, people start asking questions like where did
Speaker 1: all the rest of that money have to go to?
Speaker 1: How much are your operations costing? But in this this
Speaker 1: particular year had a lot of hard things hit the company.
Speaker 1: Was also when Lee Walker stepped down as president and
Speaker 1: CEO of Dell Computers, Michael Dell reached out to another
Speaker 1: executive named Morton Meyerson to take over the company. Meyerson
Speaker 1: had previously led the company Electronic Data Systems, which was
Speaker 1: founded by former presidential hopeful Ross Perot back in eighteen
Speaker 1: sixty two. Meyerson had led Electronic Data Systems from nineteen
Speaker 1: seventy nine to nineteen eight seven and retired three years
Speaker 1: after General Motors had Required acquired rather d E. D
Speaker 1: S for two point five billion dollars. Myerson came in
Speaker 1: originally to help Dell transition to the next phase UH
Speaker 1: and had successfully held together during an explosive period of growth.
Speaker 1: Now the company needed to transition into a large corporation.
Speaker 1: Dell Computers was transforming in many ways around this time.
Speaker 1: While the company had begun as a direct sales computer
Speaker 1: company aiming at individual customers and corporations, now the emphasis
Speaker 1: was really shifting to those larger clients like big companies
Speaker 1: and government agencies, And starting in nineteen ninety, Dell began
Speaker 1: to explore options by dealing with resellers, those retail establishments,
Speaker 1: specifically ones like Softwarehouse Superstores which later changed its name
Speaker 1: to comp us A Walmart was another one, Sam's Club Staples,
Speaker 1: and I'm sure you all know the US. But the
Speaker 1: way that reselling works is you have a merchant or
Speaker 1: a company they end up buying computers from a manufacturer
Speaker 1: at a certain price. They agree upon the price, so
Speaker 1: the reseller ends up buying those machines. The reseller then
Speaker 1: sells those machines to customers, UH, typically at a markup.
Speaker 1: You could sell them for at cost, but then you're
Speaker 1: not making any profit. And unless you're doing it in
Speaker 1: a way to try and convince the customer to buy
Speaker 1: other stuff that is marked up for a profit, it
Speaker 1: doesn't make good business sense. So the problem was, however,
Speaker 1: it would eventually prompt the company to reconsider its relationship
Speaker 1: with these retailers in because profit margins were getting really
Speaker 1: thin for Dell, and part of that was because of
Speaker 1: this this strategy to use resellers, but we'll get to
Speaker 1: that bit in our next episode. Around this time, in
Speaker 1: the early nineteen nineties, the PC market was in trouble
Speaker 1: for the most part. There was an economic recession going
Speaker 1: on in the world, and consumers had less money to
Speaker 1: spend on expensive computers. So some of the big names
Speaker 1: like Apple and IBM, we're having their own crises brought
Speaker 1: about by various questionable decisions. But Dell Computers was actually
Speaker 1: coming out ahead because the company had been focused on
Speaker 1: comparably powerful computers at a much lower price than competitors
Speaker 1: would offer. So people still needed computers, they just couldn't
Speaker 1: shell out the big bucks for the brands front like
Speaker 1: Compact or Apple or IBM, So Dell continued to do
Speaker 1: pretty well during that recession, at least at first. In
Speaker 1: Fortune magazine would name Dell Computers among the Fortune five
Speaker 1: hundred list. That list ranks the five hundred largest US
Speaker 1: corporations according to total revenue for the most recent fiscal
Speaker 1: year for those companies. Dell appeared on it for the
Speaker 1: first time in and that made Michael Dell the youngest
Speaker 1: CEO of a Fortune five hundred company. He was twenty
Speaker 1: seven years old at that time. But things were not
Speaker 1: necessarily going to go smoothly for Dell and his company
Speaker 1: in the near future. That, my friends, is what we
Speaker 1: call a cliffhanger. You'll have to join me for the
Speaker 1: next episode to find out what happened to Dell, or
Speaker 1: you know, read an article or something, but no, tune
Speaker 1: into my episode. And if you guys have suggestions for
Speaker 1: topics I should tackle in future episodes of Tech Stuff,
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Speaker 1: Maybe there's someone I should interview or have on as
Speaker 1: a guest host, send me a message. The email for
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