In November 1998, I sent to my then-colleagues at EMC an email with the subject line “The Demise of Dell.” I wrote:
“My fail-proof crystal ball just talked to me again: By the end of 2000, Dell’s market cap (today at $80B) will be cut in half.
Dell’s only strength, as we all know, is in low-cost distribution. Distribution (of everything) is going to undergo a radical change in the near future because of the Internet. There will be new players in the PC market that will figure out how to sell PCs over the Internet at half the cost of Dell’s distribution infrastructure. On top of that, the corporate PC market will grind to a halt and we may even see a slight drop in PC revenues in the year 2000. On the consumer side, appliances is where the action will be—led by new players. “
After I sent my email, Dell’s stock went on to almost double to a peak of just over $56 in March 2000. It closed yesterday at $14.09, about half of where it was in late 1998.
I was reminded of my crystal-ball—and that it needs to be recalibrated by about a dozen years—when I read in Dell’s recent filing with the SEC that among the reasons for its plan to go private are “significant and increasing competition from efficient, low-cost manufacturers relying primarily on a build-to-stock business model, rather than the build-to-order business model historically used by the Company, and from manufacturers of innovative, higher-margin PC products… [and] long-term challenges that are likely to affect PC sales, including… increasing consumer interest in tablets and smartphones, the potential substitution of these products for PC products and the related fact that the Company currently sells tablets only in limited quantities and does not manufacture smartphones.”
I got right the slowdown in PC sales and the shift to new players’ smartphones and tablets (so what if I called them “appliances”?). I also got right the demise of the build-to-order business model that put Dell at the top of the PC market in the late 1990s. What I missed was Apple’s and/or Steve Jobs’ refusal to listen to the “disruption” mantra of the late 1990s, going high-end not only with its product line but also in distribution, opening glass-and-mortar stores when everyone else was going virtual.
It’s funny I missed the “anti-disruption” scenario because I wrote that email when I got fed up with the business school professors who were telling us at EMC that we were going to be “disrupted” by low-end, commodity computer storage from the likes of Dell. Michael Dell also heard these predictions and for a while was planning to compete with EMC with his business model and “scale-out” storage, only to change his mind in 2001 and sign with EMC as a reseller. It’s an important reminder that Dell has tried to diversify from its focus on PCs and compete with the likes of IBM and HP as a one-stop-shop for enterprise IT for more than a decade. It’s important because Dell says in its SEC filing that it wants to go private so it can make the long-term investments needed to “Extend end-to-end information technology solutions capabilities.” The lack of new ideas could be attributed to a reluctance to share with the public (and competitors) innovative and “game-changing” plans or to a sincere belief on the part of Dell’s management that the only obstacle to a successful execution of this strategy for more than a decade has been the pressure from Wall Street for short-term profits.
The one-stop-shop strategy has been promoted heavily and successfully executed by Oracle, another vendor in the news recently. For a number of years we’ve heard from Larry Ellison his “back-to-the-future” vision where the future belongs (as was the distant past) to a few vertically integrated companies swallowing (or crushing) the more focused, “horizontal” IT vendors (e.g., Cisco, EMC, Microsoft). We have watched how Oracle successfully morphed from an IT vendor focused on databases to an “end-to-end information technology solutions” provider. But there was a surprising stumble in Oracle’s latest quarter, attributed by the company to mis-management of the sales force, and by commentators to difficulties adapting to new industry trends such as Cloud Computing (Brad Peters) or Big Data (Jeff Kelly).
I have no doubt all of these explanations are valid, at least to some degree. More important, one quarter with lower-than-expected results does not call for in-depth analysis. Most important, is the new/old soup-to-nuts business model both Oracle and Dell have been pursuing—one successfully, the other not-so-successfully—the future of the IT industry? Are we going to have further consolidation in the future with only 3 or 4 large IT players supplying everything enterprise IT customers need?
Let’s consider a few contrarian scenarios:
- Consumerized IT: In this scenario, the market for “enterprise IT” is subsumed by the market for “consumer IT.” Traditional IT buyers disappear as IT is bought and managed directly by business buyers the way they buy IT products and services for home use today. Bring Your Own Device (BYOD) becomes Bring Your Own IT (BYOIT). The IT organization morphs into a risk and compliance department that ensures the implementation of common standards, safeguards, and policies across the business. This is the opposite of the “IT doesn’t matter” scenario—IT matters so much that it cannot be left to IT professionals and is embedded in all business activities, functions, and units. Traditional IT vendors are replaced by Web-born companies such as Amazon and Dropbox, or even Google and Facebook, if and when they successfully diversify from almost complete reliance on advertising as a source of revenues.
- New enterprise IT: In this scenario, the IT function becomes the major driver of innovation for the business and the chief promoter of data-driven decision-making, thriving on agility, adaptability, and speed instead of its traditional hallmarks of standardization, control, and stability. A continuous stream of innovative enterprise apps emanates from focused and heavily-funded startups, with some opting to become large publicly-traded enterprises rather than being acquired by traditional IT vendors. Eventually, these new IT players relegate to a secondary position or even oblivion the traditional IT vendors that have mistakenly bet on being vertically integrated.
- Next Wave IT: In this scenario, a new wave of data growth ushers in a completely new IT landscape. The previous two waves, the first associated with the advent of computer networks, the second with the rise of the World Wide Web (see A Very Short History of Information Technology), resulted in new players pursuing new business models (from vertical to horizontal to cloud-based), a shift in the locus of most IT innovation (from data center to enterprise to consumer), and a new mode for buying IT (from mainframe/mini-computer bundles to best-of-breed to as-a-service). We are due for another wave of data growth and it will probably be driven by new devices which are always on, always collecting and creating data, from Google Glass to the vast range of the Internet of Things.
Inertia, however, is a great force and the back-to-the-future scenario may still win. But who will be the winners? Oracle, Dell, HP, and IBM? Or a handful of companies that will rise (or continue to rise) with the rise of Asia? The dominant IT vendors are the most recent in a long line of American companies exploiting scale and becoming larger and larger first on the basis of their domestic market and later expanding globally. Is this the path Chinese and Indian companies will follow in the future, building on the strength of their domestic economies to become global IT giants?
I’m sure you noticed that when I said “the future of the IT industry” I didn’t specify a timeframe. I learned a long time ago that “those who live by the crystal-ball die eating broken glass.” We can’t predict even the very near future–remember we were told last year that Apple’s stock will hit $1000 in January of this year? As honest prognosticators know well, the only thing somewhat certain about the future is demographics.
So it’s interesting to note that all the 2013 predictions I read last year failed to mention some hard facts: In 2013, Larry Ellison turns 69, Joe Tucci of EMC turns 66, and John Chambers of Cisco turns 64. What does this mean to the future of the IT industry?
[Originally published on Forbes.com]
