Dude, you're gettin' a Dell
The Story of the Dell Computer Corporation
Michael Saul Dell was born on the 23rd of February in 1965 in Houston, Texas. Dell was a driven child. At the age of 8, he tried to get out of school by taking the Highschool equivalency exam. While he didn’t succeed, he did get part time jobs in his early teens, and he began stock and precious metal investing. The trajectory of Dell’s life began to take shape at the age of 15 when he bought himself an Apple ][. Getting the machine home, he promptly chose to take it apart and see what made it work. In his own words:
A good thing about the early personal computers is that they had completely kind of standardized chips, and so you could literally get a book about each chip and read what each pin did, and how signals were processed through the chip. You could design your own circuits and you could modify them, and you could literally see exactly how the thing was working. That was sort of the classroom for me.
Other critical skills for his future were gained through selling newspaper subscriptions. There’s obvious sales experience involved there, but the young Michael Dell wasn’t content to be just another seller of newspapers. He realized that the people who were buying the newspaper generally had one of two things in common, they were either moving to a new home or getting married. In the USA, to be wed requires that the couple obtain and file a marriage license, and this is public information. Of particular interest to a person selling newspaper subscriptions is the address to which the couple wants the license sent once it’s issued. Dell hired all of his friends and they went to 16 counties in the Houston area. They captured the addresses of all of the people who applied for marriage licenses from the courts. Armed with the newly weds’ addresses, he then sent them a direct mail offer for a free trial subscription to the paper. As a result of his efforts, Dell earned himself $18,000 dollars (roughly $66000 in 2023). That’s quite the paper route. With these funds, he did what I believe every young man (and perhaps more than a few grown men) in America would do, he bought himself a new computer and a new car.
Michael Dell’s parents were successful professionals, one in orthodontia and the other in finance. They wanted their son to be a successful medical doctor and they exerted pressure upon him to become so. As a good son, Dell endeavored to oblige his parents and enrolled at the University of Texas in 1983. Unfortunately while he had every intention of going to school, he wasn’t really the school type of guy. As we saw when he was young, he was simply drawn to business. In his college dorm room 2713 in the Dobie Center residential building, he launched a small computer business, PCs Limited, with nothing but $1000 and a rather simple product idea. Dell’s parents weren’t happy. Around Thanksgiving of 1983, they pressured him to commit to quitting the business and focus on his studies. That didn’t work out quite the way they hoped. Instead, the business was officially legally founded… and Michael Dell simply neglected to inform his parents.
The company's name was officially "PC's Limited" but that apostrophe drives me nuts, so I will be referring to it as PCs Limited... I mean, the PCs don't own the Limited, right? Ugh... Anyway, back to the story.
In January of 1984, he moved the operation to a condo off campus. That Spring, he dropped out of school. His company was selling around $80,000 per month, and he simply didn’t have the time for anything else.
At this time, personal computers were bought in retail stores. If you wanted an IBM 5150, you went to a store and you bought an IBM 5150. If you wanted to upgrade it or to customize it, you simply needed to choose one of the standard configurations and do your customizations yourself. Dell saw an opportunity in this situation. He sold upgrade kits for IBM PCs. This is a bit more complex than it sounds. The majority of home computers at the time didn’t have hard disk drives, and that included the 5150. PCs Limited would purchase the disk drives and the controller chips, and they’d write a small amount of driver software for them. They packaged all this up and essentially empowered their customers to add hard disks to their PCs affordably. To make the process easier, they’d designed a small computer to format the drives, and had a few of them setup in their condo workspace. With hardware stacked floor to ceiling, tables and computers and kits strewn about, it wasn’t the tidiest, most professional environment. A customer from Martin Marietta came calling with a request for 150 kits. This sent the group into a frenzy of cleaning and straightening. Then while Dell was showing the customer around the area, the gentleman noticed the computers:
Customer: What are those computers you have?
Dell: Oh, those are the computers to format the hard drives.
Customer: Can we buy those?
Dell sold him several. The company hadn’t really ever thought of selling fully assembled computers before, but they certainly did now. They bought the unsold inventory of IBMs at cost from retailers, upgraded them, and then sold them at around 15% below market price. The prices were kept low by not having the overhead of retail locations. Small ad runs in magazines generated sales by phone, and sales were extremely good for a new company.
In 1985, PC's Limited released the Turbo PC, their first custom machine that was sold to the mass market. There was a computer fair in downtown Austin. By this time, PCs Limited was the largest purveyor of computer equipment in their area. Accordingly, they had the largest booth in the center of the space that the fair had. They’d made the computer in a few days, put it in a case, and brought it to the show.
This was an XT class machine with an 8088-2 clocked at 7.33MHz, 640k max RAM, 10MB HDD, and a 360k 5.25” floppy disk drive. However, everything else could be customized at the time of order. You could get another FDD, an 8087, expansion cards, and so on. The price of the Turbo PC started at $795 (around $2300 in 2023), which was quite a bit lower than IBM’s price of $7545 for a 4.77MHz machine (around $22500 in 2023). There was quite a bit of interest, and within a few months the entire company pivoted to making these machines. Sales for 1985 topped $73 million (around $214 million in 2023).
Parts deliveries were just-in-time to PCs Limited, and this kept inventory to an absolute minimum. As machines were built to order, there were no unsold machines. These factors, in concert with those already stated, helped keep their prices low. Sales volumes being ridiculous and the parts volumes being concomitantly ridiculous meant that the company could easily require vendors to have warehouses or even their own factories close to PCs Limited’s factories, cutting delivery time and cost.
Quite a bit of the early PC market was made of hobbyists and enthusiasts. This was not true for PCs Limited. Most of their sales were to large companies and to public institutions that were looking to make their workforce more productive. This started quite early in the company’s life. Their ads in computer magazines appealed to business folks, and very quickly half of their sales were to businesses in the Austin Texas area. The other half was spread across the country with businesses and end-users.
In 1986, PCs Limited offered the first toll-free technical support service. This was new, and it was a good selling point. They built a 12MHz 286 machine the same year, and that machine was first shown at Comdex. Their 286 was priced at $1995, a price that was roughly 50% of the competition’s machine and was roughly double the speed.
The company was growing and expanding quickly. Michael Dell realized that most people don’t live in the USA, and therefore to reach his total addressable market he’d need to expand. The word “limited” can be problematic in some parts of the world, and he therefore changed the name of his company to Dell Computer Corporation. The first international expansion was to Ireland and the UK. They weren’t a public company, they had very little capital, and they chose to expand anyway. For each region opened, the company had a regional factory. Demand was still excellent, and meeting this demand would require more capital. Dell went public on the 22nd of June in 1988 raising $30 million (about $77 million in 2023), valuing the company at around $85 million (about $218.5 million in 2023). IPO shares priced at $8.50/share (around $22 in 2023). Global expansion occurred rapidly.
One thorny issue that the newly public company had to face was service. In most parts of the world, microcomputers weren’t much of a thing yet. This meant that surrounding services and industries also weren’t a thing. For someone buying a computer from Dell, where would he/she get support? Dell began offering on-site support/service in 1989. A customer could call Dell, let them know that his/her computer wasn’t working, and Dell would have someone on-site the next day. Of course, most of the time, the issue could be addressed over the phone.
Explosive growth continued, and by 1992, Dell Computer Corporation was on the Fortune 500. This made 27 year old Michael Dell the youngest Fortune 500 CEO in history up to that point.
PCs Limited and Dell Computer Corporation had only sold desktop microcomputers. This changed in 1989 with the release of the 316LT. This was a 386SX machine at 16MHz paired with a 387 coprocessor. The machine shipped with 1MB to 8MB of RAM, a 3.5” floppy disk drive, and 20MB to 120MB HDD. The screen was a monochrome 9.5 inch LCD capable of 640x480. For expansion, the machine had a serial port, a parallel port, one 8 bit ISA slot, and an AT keyboard connector. The computer could be purchased with an integrated modem and this could be 300, 1200 or 2400 baud. Without batteries, this machine weighed in at 13.5 lbs. NiCD batteries were usually large and heavy, and depending upon capacity, one could reasonably expect the machine to weigh an extra 5 lbs. The initial price was $3500 for the base configuration (around $8500 in 2023).
The pace of growth for Dell would only accelerate. In July of 1996, Dell filled the first orders for computers purchased on the World Wide Web. This was crazy innovative at the time, and many people expected this to fail. Who would want to buy a computer over the web, never having tested the model in a store, never having seen it in person? Well, with zero promotion, dell.com was selling about 50 machines per day on their website. Within 6 months of launch, daily sales hit $1 million (about $2 million in 2023). This was actually a bigger deal for Dell than most would realize. From the start, Dell was focused on business customers first. As such, for most people, buying a PC online was the first exposure they’d had to the brand. Apparently, the company was making a good first impression; by 2000, their daily online sales were roughly $40 million (about $71 million in 2023). By 2001, Dell Computer Corporation was both the biggest and the most profitable PC manufacturer on the planet.
Unfortunately, getting big comes with issues. A rather vocal segment of Dell’s customer base accused the customer service staff of being rude and/or ignorant. The company was, in general, accused of using of cheap components. Sales were still high, but this kind of criticism was occurring in the midst of the Dotcom crash and the early 2000s recession. The response from Dell was the Dell4me ad campaign.
The campaign was created for Dell Computer Corporation by Doyle Dane & Bernbach (DDB). It starred a teenage “surfer dude” named Steven promoting Dell in an ebullient manner in rather unlikely scenarios, often where he wasn’t keen on social cues, and often using the phrase “Dude, you’re gettin’ a Dell.” Teens and young adults liked Steven in polling while older demographics were variously charmed or annoyed by him. Either way, the ad campaign did make Dell front and center in the minds of the TV viewing audience. The campaign ran 3 years (2001 - 2002), had 26 ads, and cost Dell around $200 million (around $330 million in 2023). This campaign was novel for the company. Their ads had hitherto only really targeted the business market. These new TV ads were clearly targeted at teens trying to convince their parents to get them a computer, or young adults who needed a computer for education. That is, the campaign specifically targeted non-business customers. This would seem to go hand-in-hand with the company’s new status as the dominant PC manufacturer.
For the role, one Benjamin Curtis was chosen. At the time, Curtis was 19 and attending NYU on an acting scholarship. One of his friends was a business major working with a talent manager. Through this connection, Curtis was sent on several auditions that didn’t turn out well. However, one audition was for a Dell computer commercial that was initially seeking a 12 to 17 year old kid, so… Curtis was the only guy there without his mother. He nailed it. What was initially going to be just 2 or 3 commercials became 26, and he made a healthy six figure sum off of it. He has publicly stated that most of his money went to pay off his student loans, and another healthy amount went to rent (New York City is rather expensive). Being a young adult however, cars, vacations, and drugs took a decent amount. In 2003 in the lower East side, Curtis was arrested on a marijuana charge. He was getting some weed delivered, and the deliverator was being followed by an undercover cop. As Curtis put it:
You know, he sees a guy in a kilt buying from a guy on a bicycle, and what’re you gonna do but arrest him?
Unfortunately for both Curtis and the American TV-viewing public, Dell has a rather strict no-drugs policy, a result of which is that Curtis’s employment was terminated quite promptly following his arrest. The publicity of this incident hurt Curtis’s career, and he didn’t act for sometime. When he did it was primarily theater. He was able to more or less fix his career after roughly five years.
Dell’s sales rose 38% immediately following the release of the campaign and awareness of the brand rose significantly. The campaign seemed to have worked.
Dell Computer Corporation wasn’t solely making computers anymore. Starting around 2002, they’d expanded into network equipment, displays, televisions, handhelds, digital audio players, and printers. This resulted in a name change in 2003. Dell Computer Corporation was now just Dell Inc.
For Michael Dell, philanthropy was becoming a larger and larger interest, and he resigned as CEO in 2004. He was replaced in the role by Kevin Rollins.
What followed wasn’t particularly great. Dell did not succeed in several of the markets they’d been trying to enter (handheld devices, audio players, etc), and their customer service reputation was growing increasingly negative. This was devastating for a company that had won awards specifically for customer service. The mid-2000s capacitor plague was present and severe in their computers, and the stock price started to slide. Part of this was the race to the bottom in PC pricing that was occurring industry-wide at the time, and another part of this was likely the result of low R&D spending. Dell remained thrifty as was their nature, but the company did so at the cost of losing its edge in innovation. Dell had built its reputation upon extremely high levels of customer satisfaction at a time when a PC sold for thousands of dollars. The same level of quality and customer service couldn’t be maintained when computers sold for hundreds of dollars (and the dollars themselves were worth less over time). The low R&D spending ensured that the company was going to fall behind. Server and networking products sell at significantly higher prices, but they were require larger amounts of R&D to remain competitive. HP PSG surpassed Dell as the number one manufacturer of PCs.
Dick Hunter was moved from leading manufacturing efforts to leading customer service efforts. He made it every customer service representative’s mission to resolve each inquiry in a single call. The company also introduced DellConnect in 2006 which allowed customer service representatives and technicians to remotely connect to customers’ computers and offer assistance. Hunter poured over $100 million into the remake of Dell’s customer service. The company needed to silence criticism and make amends with customers. To that end, they contacted bloggers who’d written negative reviews and endeavored to solve their problems and set things right. The company launched Direct2Dell, a blog, where problems people’d made public were discussed frankly. Then, in February of 2007, Michael Dell launched IdeaStorm.com where the company asked the public for ideas on what to do to right the ship. The two suggestions always mentioned are Linux machines and removing bloatware. Both were followed.
In 2007, Rollins resigned as CEO and Michael Dell returned. Michael Dell then started “Dell 2.0.” This involved the diversification of the company’s products and some serious layoffs. Many Canadian and US offices and all of the factories in both countries were closed over the next few years. Most manufacturing would be done in East Asia, Mexico, and Poland. By 2011, Dell had dropped to number 3 manufacturer of PCs as Lenovo took the number 2 spot (although Dell was still the second most profitable). While Dell was able to save cash, its diversification efforts were unsuccessful. The Dell Streak did not succeed, and Dell’s tablet attempts were likewise dismal.
In 2013, Michael Dell partnered with Silver Lake Partners and Microsoft to take the company private for $25 billion (around $32 billion in 2023). The deal closed on the 30th of October in 2013, ending Dell Inc’s 25 years as a publicly-traded company. Following the buyout, Dell offered employees a voluntary separation program to trim headcount. The goal was around a 7% reduction, and this was exceeded.
Two years after the buyout, Dell bought EMC for $67 billion, and the company changed its name again. The newly named Dell Technologies became the largest privately held company in the world.
Today, Dell still produces PCs, servers, computer software, and displays. The company also operates several services categories relating to hardware, software, and security. As of 2023, Dell is ranked 34th on the Fortune 100.
Ben Curtis recovered his acting career and was in Orange is the New Black and The Marvelous Mrs. Maisel. He also made some more commercials for Dell Technologies…
Dell wasn’t alone in struggling over the last 30 years. First, with the race to the bottom in pricing on PCs many competitors went out of business or were purchased by others. PCs in general then began a steady decline in sales with the rise of smartphones and tablets. This combination took still more players out of the market. While Compaq, AST, Eagle, Zenith, Gateway, and more all have gone, Dell is still around and showing the world that $1000 and a whole lot of personal drive can win.