The Decline of Dell...What Happened?

[Music] what do you call a computer that sings adele because like the singer adele oh boy all right now that we're off to a great start let's talk about dell remember how they used to be the biggest computer brand in the world from 2003 to 2006 in terms of market share they were the biggest remember this guy you can get a dell with what you find right here dude you're getting it down that was an extremely popular marketing campaign i was like 10 years old at the time and everyone at my school was saying it i don't even know why we were just saying it like we would get someone's attention by saying dude and then they would look up and say what and we would say you're getting adele trying not to laugh i don't know i don't get it anymore either but trust me it was funny dell was huge but after 2006 they lost that number one spot to hp and have never gotten it back to be clear they haven't failed they're still in business but i think anyone would agree that they've had some tough times and are still nowhere near the level they used to be at least in the pc market so let's take a look at how they gain that number one spot how they lost it and where they stand today now when we're talking about dell there's one person that's directly tied to the company michael dell it's named after him he started it and he's been the ceo for most of its existence including today he's the current ceo he's number 39 on forbes list of the richest people in the world showing a net worth of over 22 billion this guy's a genius and he started the company when he was 19 years old at age 12 he made two thousand dollars by starting a mail-order trading card business in high school he made eighteen thousand dollars in a single year delivering newspapers he implemented all these effective sales strategies and detected new customers using data sifting techniques so at age 19 he went away to college at the university of texas at austin and with one thousand dollars capital which even in 1983 was practically nothing in terms of starting a business he started a business the initial business involved buying stock computer parts assembling them into clones of ibm computers and selling them for cheaper prices his business was based on the principle of cutting out the middleman he would advertise in places like computer magazines and mail the orders to the customers cutting out the need for distributors and physical stores which would save them money and allow them to sell at lower prices here's a quote from michael dell he says i saw that you'd buy a pc for about three thousand dollars and inside that pc was about six hundred dollars worth of parts ibm would buy most of these parts from other companies assemble them and sell the computer to a dealer for two thousand dollars then the dealer who knew very little about selling or supporting computers would sell it for three thousand dollars which was even more outrageous the first year of business resulted in six million dollars in sales remember he was still a freshman in college running it completely out of his dorm by the end of his freshman year he was generating sales of 25 000 per month i think he made the logical decision by dropping out of school and pursuing this full-time by the summer of the next year instead of just making clones of computers made by other companies they started making their own computers by the end of their second year their sales had increased to almost 40 million dollars in 1987 they were the first of their kind to implement computer repair house calls instead of you bringing the computer to them they would come out to you really they sort of had to do it because there weren't any physical stores for people to bring their computers to but it helped their reputation of having positive customer service and again helped separate them from the competition by 1988 their sales were 258 million dollars and they raised 30 million by becoming a public company and selling 3.5 million shares at 8.50 a piece this might be the most remarkable first five years of a company i've ever seen just considering the fact that it was started by a 19 year old college freshman in his dorm room and within five years became a multi-million dollar publicly traded company holy cow and it just continued to grow from there in 1989 they were the 22nd largest pc maker in the next year they were number six and then from 1991 to 1992 their sales more than doubled and they first made their debut on the fortune 500 list with michael dell being the youngest ceo on the list at age 27 this guy was really young in 1996 they launched dell.com and started selling their pcs over the internet the way dell had separated themselves from the beginning was cutting out the middleman it was a business built on the idea that retail stores were unnecessary and they could deal directly with the customers at first it was through catalogs and over the phone but you could imagine how much easier the internet would make all of this they were running their business on the same principles as an online retailer anyway they were now using the internet to coordinate the customer orders with orders from the suppliers it was an easier means of technical support and just a superior way for customers to place orders within the first six months their online sales had reached one million dollars every day by 1999 it had gone up to 30 million dollars daily which was 40 of their overall sales the next year they were selling 40 million dollars through their website every day it was soon after this when they started that obnoxiously catchy ad campaign soon after that they took that number one spot of pc market share look at their sales graph from the very beginning up until 2005 it wasn't a flawless 22 years but my goodness i don't think they could have hoped for any better than this from a 19 year old college student building pcs with the one thousand dollars he started with to becoming the world's largest pc maker with over 50 billion dollars in sales if i extend the graph we see their sales did continue a little longer but it gets a little shaky after that here's why i identify 2006 2007 as being the turning point for one that's when they lost that top spot of pc market share to hp during that year hp stock went up 45 while dell stock declined 16 and also consider their operating margins an operating margin can show how profitable a company is here's a graph comparing dell and hp from this time if you look at 2003 for dell it shows 8.55 percent meaning for every dollar in sales they made eight and a half cents in operating earnings the higher the better and you can see in 2006 it fell for dell and it went up for hp and those trends just continued also around this time they had a recall of 4.1 million laptop batteries because they could erupt in flames that's not good for profits but it's really not good for their reputation i don't want my laptop to erupt in flames they were also being criticized for their poor customer service and an accounting scandal came to light that i don't want to talk too much about right now but it ended in dell paying a 100 million dollar settlement in 2010 so between their falling financial state market share stock price operating margin and their falling reputation battery recall customer service accounting scandal i'd say this was a bad time for dell now i've been talking about michael dell being the ceo but he actually wasn't during all of this he was ceo up until 2004 and then this new guy kevin rollins stepped in during his time in charge the company was criticized for lacking innovation the criticism was that they were too concerned with offering an inexpensive computer and getting it to the customer quickly rather than making a good computer they were spending considerably less on research and development than their competitors which has sort of always been their strategy but i suppose customer tastes were changing and they're becoming more and more concerned with a good product and willing to pay more for it once everything went bad rollins left and michael dell came back that's when he tried to turn everything around and i'm not so sure how effective it was initially he took over right before the economic downturn in 2008 which didn't help things but also the market for pcs isn't what it used to be with the introduction of the ipad in 2010 along with other tablets and even smartphones people aren't relying on personal computers as much as they used to dell has always been mainly concerned with computers but i think at this point they saw that they were struggling to stay on top of the computer industry and it wasn't the ideal industry anymore anyway from there they've slowly but surely been changing their focus from pc sales to services they've been acquiring all these other companies most of them involved in it or network security or cloud storage in 2013 they made a huge move when michael dell and a private equity firm called silver lake partners got together to buy dell they took the company private for the first time since that initial public offering in 1988. michael dell said the reasoning behind this was because the investors were too concerned with short-term earnings and they needed to make some big changes i suppose taking it off the market for a while allowed them some freedom to take chances and switch things up so they could build something that'll be profitable in the long term probably the biggest thing they've done during this time is by the company emc which focuses on traditional and cloud-based storage centers it costs 67 billion dollars and form the world's largest privately controlled tech company the move further supports their switch away from computers and towards services so much so that they changed their name to dell technologies today the state of ownership of dell is a little strange but they're working toward becoming a public company once again let me know in the comments was i the only one who did the dude you're getting adele thing in school sometimes you'd say dude like you were really upset and then the other person goes what and then you'd start smiling and say you're getting adele alright but also let me know if you agree with the reasons i provided for their downfall and if you think they've been moving in the right direction since it appears to me that they have but there's a lot to consider you can make so many arguments concerning their struggles so if you have any thoughts about it that i didn't address please leave them in the comments and michael dell i know i've said it too many times already but 19 i can't get over it are you as impressed as i am i'd like to hear what you have to say you're gonna say it aren't you oh he knows thank you for watching

Channel: Company Man

Views: 1,827,170

Rating: 4.7910571 out of 5

Keywords: Dell, PC, Computers, Company Decline

Id: rgDjQLyFXTA

Length: 11min 1sec (661 seconds)

Published: Wed Oct 10 2018