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I tend to get many questions about Dell, especially lately in light of all the troubles that they have been facing. I haven’t written about them for many months because it’s a touchy subject. As you all know they acquired Alienware and they continue to expand their XPS line, therefore I view Dell as a competitor in our space.
There are many questions as to how Dell managed to turn around from the darling of Wall Street to being the punch line of many jokes not least of which is the battery scandal which started by a simple picture at the Inquirer. (for what it’s worth, Apple recently recalled a number of Sony batteries as well).
About two years ago I had a serious discussion with my bro about the future direction of Voodoo. We knew our brand was growing at an unreal rate, yet I was facing serious challenges in the area of product development as it related to creating new and fantastic products. He understood our problem better than anyone so it was easy for us to design a strategy together. My problem was that in order to create some serious out of the box innovations on the mobile side I needed to support enough volume so the ODMs in Taiwan would take us seriously and produce what we wanted. His problem was that he didn’t want Voodoo to go downstream in order to scale like our competition, which means we would lower our ASPs, increase our volumes, and potentially harm our customer base and brand.
The long story short is we both stepped away from the operations at Voodoo in order to build strategic relationships with certain companies which we hoped would foster into something much larger.
We spoke with a couple of key ODMs, and at least three of our vendor partners. I started to design conceptual product roadmaps for future products to which I believed could change the industry. In the meantime I was flying around from place to place conducting meetings with who we both believed were the right fit for our future strategy.
I went to Europe in mid 2005, and I started some discussions with a few different people on the ultimate strategy for Voodoo. I had planted the seeds to a strategy which could eventually allow us to innovate like no ones business; in the meantime I was polishing up some rough product ideas until they started to pop.
On November 11th out of the blue I received an email from someone claiming to be Michael Dell. I remember it well, because it was Rememberance Day in Canada. I was sitting at home in my cycling gear as I was getting ready to go on a ride to Bragg Creek. My first reaction was to write back a short note saying something to the tune of “if this is a spammer, get lost, if not I apologize, what’s up?”
..about ten seconds later I get a response explaining that it wasn’t spam - it was real (if you read the email address you would laugh), and he requested to get on the phone with me almost immediately to discuss some things. We spoke for about 15 minutes until I got on the bike for what seemed to be the longest ride I had in weeks. As I was riding down highway 8 towards Bragg Creek I was wondering what Michael Dell was thinking when he called me. He is one of the most respected people in our industry, so I was somewhat rattled at the time. It seemed as if he was on a fishing expedition trying to understand the gaming market, the size, and the importance to the industry.
I rode back a couple of hours later and we got on the phone again. We spoke for over an hour, and just as I thought he was fishing on the industry. I had a feeling that he was fuming - PC Magazine just released their much anticipated Issue 21 where Dell came in last place on the high end desktop segment. He started to ask who my competitors were, and he asked questions about them.
It was at that point that I thought it might not be a bad idea to speak with him about some of our ideas without giving away the entire strategy. I did just that - I told him what I thought of his company (good and bad) and how I believed that Apple was poised for incredible growth this year. I told him that I believed Apple was a very innovative company and I wanted Voodoo to become an innovator just like Apple. His response was something that I’ll never forget. Michael Dell said Apple spent the same amount of money as Dell did on innovation the year prior - and based on their sales Dell was more profitable.
While I understood the number issue behind his statement, I felt it was said with an heir about it, and it was coming from a guy who was about to face major competitive pressure against Apple. I believed (and still do) that as long as Steve Jobs remains at Apple they will be a huge threat to our market.
I also suggested that one of his biggest mistakes was staying exclusive to one processor – because it meant that they had to perform in order for him to perform. After the conversation I assumed he was knew that Dell would eventually have no choice but come around and allow AMD in as an alternative to avoid such situations in the future.
I remember in the weeks following Michael Dell and I would exchange many emails back and forth. He sent me some reports on the gaming industry that he wanted me to go over, so I did. We would email each other at odd hours of the night – it was neat to see that the “ol’ guy” was still so enthusiastic about his business. One of the email threads we were carrying was a friendly bet… I suggested that now that Apple was using Intel they would grow to beyond 8% North American market share in about 13 months. Michael suggested otherwise and wanted to bet on an OMEN Elemental. Let’s just say that we had many discussions which I won’t get into too many specifics – but over that time I gained respect for the man even though we never saw eye to eye on a vision. I was starting to question the validity of our strategy, but I realized that it wasn't our strategy that had a problem - it was the fit.
We met in December, I wanted to explore my broad product strategy to see how it might fit with Dell’s. My brother had other ideas, he believed that Dell lacked innovation, and their model would never fit with our strategy. To be honest Dell wasn't even on our radar for our strategy at the time. While he may have been right about a few things, I still thought there was hope that Dell would see what I saw – perhaps Michael Dell would realize that Apple was a bigger threat than he actually perceived. This was the first time ever that my brother did not get involved in a business discussions with me. No doubt we were at odds - so much so that my brother flew to Morocco on the week I was to go to Round Rock for the meeting with Dell.
Believe it or not I had no prior information that he was going to buy Alienware when I wrote the “Dellienware” blog. In fact I had no idea that he had spoken with them at all. I simply guessed correctly based on a number of the discussions we had that he was convinced that an acquisition needed to be made. There really wasn’t much of a choice for a potential acquisition, so I figured the article made sense. After posting the blog I was immediately flooded by hate-mail from the Alienware fanbase – and I was wondering if I had made the right guess.
I then received a call from an un-named source who said “How the hell did you know about this?” – I felt somewhat vindicated. The source confirmed that indeed that was going down, and that he actually learned about it from my blog and did some digging to confirm it. I could sleep easy without worrying about the short term fallout. I was excited by this acquisition in so many ways you have no idea.
Getting to the point of this article, I believe that Dell lost its way a long time ago. I remember Kevin Rollins was once quoted as saying the Apple IPOD was a “fad”. You know you’re in trouble (or at least I did) when the CEO of one of the largest PC company's on earth didn’t understand the real strategy behind the IPOD; yet there were some of us who saw the light. I couldn't believe the CEO of one of the leading PC companies couldn't see the pending revolution behind something as iconic as the IPOD...! Like WTF?
I suggested to Michael that his company was losing its edge – and that the Direct by Dell model that we all knew was being taken down the wrong path. I said they had lost brand “karma” as a result of the public comments about customer service issues. I told him that I felt corporate blogging was very important, and that they shouldn’t ignore those who are vocal about their customer service issues. An interesting side-note, Dell recently started a blog for customer service/updates on the company, and I’m starting to see some of the things we discussed come out in some way shape or form.
I also suggested that they over-slashed prices in order to gain market share to the point where they may even inflict damage on their own suppliers. Growing market share by slashing prices is ultimately a losing proposition because eventually you'll hit a ceiling. I assumed that much of Dell's I.P. was supply chain management related and perhaps not product related. I told him that when I saw Dell in Costco and Wallmart I knew then that they had lost their way.
While I don’t know the real behind the scenes details - since Kevin Rollins took over the stock seems to have declined slowly. Perhaps I wouldn’t place blame on one person... Some might blame market conditions for this, but then that doesn't explain why HP is kicking ass. Some might even say that Kevin Rollins is doing a great job. Then again George Bush was once quoted as saying that “Browny was doing a great job” referring to Michael Brown, the ex-director of FEMA, in the aftermath of Katrina. It really depends on your perspective perhaps – we can all throw stones but unless we are on the inside we’ll never know. One thing I do know is as long as Michael Dell keeps an interest in the company I would assume that they will turn things around. In fact I would venture a guess that the stock would jump considerably if Michael Dell would become CEO again - after all, no one knows Dell better than Michael Dell.
I am still unsure what their strategy with Alienware is. No doubt I’m excited to see what happens, I am certainly enjoying the view from where I sit. :-)