Michael Dell: Consumer electronics, utility computing and Linux

Michael Dell, the chairman and CEO of namesake computer maker Dell, certainly knows how to fit his image to his company.

Dell, the computer maker, is known as an execution marvel, which turned the lowly distribution channel into a key source of competitive advantage. Dell, the man, delivers the vision with admirable dispatch, carefully stripped down to essentials.

But Dell - man or company - is not one to take on the lofty goal of remaking the technology industry by introducing radical new ideas, a la Steve Jobs. Rather, Dell is content to engineer changes that customers want, making computers and systems that are more cost-effective.

In a roundtable discussion with silicon.com's sister site CNET News.com's Editorial Board, the 38-year-old Dell, who has led his company since its founding in 1984, was tight-lipped about naming management gurus or companies he aspires to emulate. He was far more comfortable talking about Dell's strategic moves into new markets and his disdain for competitors' grandiose visions of things such as utility computing.

Q: You're crossing over into consumer electronics. Is it a stretch from your core competency in PCs?

About 85 per cent of our business is businesses, institutions and governments that buy computers from us. About 15 per cent is consumer. So with consumer electronics we're talking about a subsegment of 15 per cent of our business. We sell more LCD monitors than anyone in the world, 70 per cent greater than the number two company. More customers are using those in multimedia capabilities, like in TV tuners. In Japan, 50 per cent of consumers are using their PC as a television. These are emerging requirements. We started developing LCD monitors with tuners in them. I don't see it as a complete departure as much as a natural extension. All of our strategy emanates from computing, whether it's MP3 players or the millions and millions of customers using Dell Musicmatch.

Are you beefing up R&D to make your consumer products more unique, or is it more the case of using your distribution muscle?

We have 3,600 folks in our R&D division and spend half a billion dollars a year, similar to the amount Apple spends. We don't think percentage of revenue is a good measure of success in R&D. We look at it as "What do we need to spend to accomplish what we need to accomplish?"

But you feed off Microsoft and Intel R&D.

Our strategy for development is different than Microsoft's or Intel's. Those are ingredient companies. We're a computer systems company. We have a higher return on R&D than any other computer systems company, about five times the profit for every R&D dollar spent. A lot of companies say they're better than us because they spend more on R&D. What are they better at? A lot of the R&D spending is actually spent to protect things that are proprietary, of no benefit to the customer. We only do the kind [of R&D] that benefits the customer. We don't try to reinvent things that other companies have [invented].

What have you done specifically on the R&D side that you're proud of?

We've made products easier to use and service. We've innovated in time-to-market. Who had the first colour notebook powered by batteries? It's Dell. There's this misnomer that companies that spend more on R&D are somehow better and more successful, but there isn't a lot of data to support that.

If you look at innovation, it doesn't just occur in the lab. Comdex is the place you go to show things that nobody knows what to do with, because they haven't found a market yet. We don't develop things nobody knows what to do with. We develop things people want to buy - and buy in volume. Innovation can occur in supply chain and logistics, manufacturing and distribution, and sales and service. We've made computing products far more affordable. If you look at the cost of computers 20 years ago versus now, we've caused the whole industry to get more efficient.

How do you see your role in terms of design? Would you rather let someone like Apple take the lead?

We spend about as much as Apple in R&D. Just because we sell a whole lot more doesn't mean we're bad. I thought that was part of the objective.

How do you see the battle playing out between the PC and consumer electronics companies?

Increasingly they're the same companies in both categories. In the digital home, people want to hook things together. I'll give an example: If you look at digital cameras two years ago, most had proprietary methods to connect with the PC - special cables, special interfaces. The user said, "Forget that, I want USB." What's really winning here is the PC. It continues to be the major point of influence in the use of this information in the home, whether it's music or pictures. I think you'll see the same thing happen with video. I'm not suggesting that consumer electronics companies will go away. I'm just suggesting that all companies in this digital home are going to be forced to fit into this framework where consumers want things to hook together.

Certainly there are enormous opportunities in this market for Dell. We launched this consumer business in 1997 and went to like 30 per cent share in five or six years. Plenty of people said you can't do that, you've got to have retail stores. The fact that there are sceptics who don't believe we'll succeed in another market - take a number.

The basic PC hasn't changed all that much. How do you see it evolving?

When you talk to users, you continue to hear the focus move away from memory-processor into other things - video, media, networking. We as an industry have to make our products more reliable, safer, more productive, more entertaining. If we don't they won't buy it. There were 160 million computers sold this year. Apparently somebody likes them.

Will there be anything radically new?

There's a lot to do in man-machine interface. If you think about the power in the computer and power in the brain, you've got very low bandwidth in the interface between the two. But those are not problems that will be solved quickly. There's ample room for invention. The notion that we've reached a plateau in creativity is total nonsense. It will continue to evolve. Our role is to understand customer requirements and bring together solutions in the most effective, efficient manner on the planet.

You'd rather be pragmatic than revolutionary?

Yeah, sure.