Dell-driven changes send US PC business into "Third Wave"

The rapid growth of Dell Computer and its innovative direct approach to manufacturing and distribution have sent the US PC industry into a 'rare cyclical transformation' that Dataquest analysts expect will transform competition. Vendors that don't join what the analysts are calling the 'third wave of historical industry changes' could be left behind. The Dell model, which also has been followed by Gateway 2000, allows corporate PC users to buy directly from the vendors, providing a made-to-order approach.

The rapid growth of Dell Computer and its innovative direct approach to manufacturing and distribution have sent the US PC industry into a "rare cyclical transformation" that Dataquest analysts expect will transform competition.

Vendors that don't join what the analysts are calling the "third wave of historical industry changes" could be left behind. The Dell model, which also has been followed by Gateway 2000, allows corporate PC users to buy directly from the vendors, providing a made-to-order approach.

While corporate users still tend to rely on resellers for delivery and support of customised PCs, some would rather deal directly with vendors. Some resellers also are changing strategies, allowing buyers to purchase PCs and related goods wholesale.

The industry change bodes well for PC users.

"They'll end up with lower-priced systems because the efficiency in the channels will be improved and that will result in lower prices for a given set of capabilities," says analyst Kim Brown of Dataquest. "That's one of the beauties of the PC industry in general - it just keeps getting more efficient."

Success might, however, take time and cannot be based simply on duplicating a model that works for another company.

"Dell didn't do very well with (its business model) until about two and a half years ago," Brown says, adding that vendors interested in entering the direct-sales market have to do more than merely duplicate what Dell and others already logged on to the emerging trend are doing.

Still, Brown sayst there's plenty of market share to go around.

"There's a huge market, lots of room out there," he said. "Nobody's got more than 11% market share."

Dataquest analysts have predicted that PC vendors that don't follow this trend won't survive.

"We're not going to name names,'' Brown says, adding that as a general profile vendors that don't adapt and go forward will fall by the wayside.

Those vendors likely to succeed are experiencing high growth with more efficient manufacturing and distribution, including opening warehouses near factories.

"People who don't do that are going to get hurt," Brown says, adding that "the ones that have momentum are going to keep building momentum."

Dataquest has published a report on the changing PC market called "The Future State of the US PC Industry." In the report, Dataquest has identified two other benchmarks in the PC market's history besides the latest change. The first happened in 1985 when IBM PC became the industry standard. Microsoft and Intel set the foundation for that market and companies that didn't innovate around DOS and emerging I/O standards didn't succeed, although Apple Computer was then the exception.

The next great change came in 1992 with wide adoption of Windows and the x86 architecture that created a market giving most of the hardware technology innovation to Intel and a small group of other component manufacturers.

Copies of the Dataquest report and other information may be obtained via the World Wide Web at http://www.dataquest.com/.

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