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•4 The 100 Greatest Business Ideas of All Time

Idea 2 – Dell deal direct

You must have heard the one about ‘If the car industry had developed its products
as rapidly as the computer industry over the last 30 years, a Rolls Royce would be
capable of breaking the sound barrier, use only a teaspoonful of petrol to go from
coast to coast and cost less than a dollar.’ I have always worried about this since the
aphorism should include the phrase ‘and be the size of a matchbox’ which would
undeniably diminish the car’s usefulness. But the sentiment is understandable and
the selling innovation behind Dell Computer Corporation is a fine example of the
truly incredible rate of progress made by the computer industry.

In 1969 a corporation could buy for $350,000 a computer that would contain a
central processing unit with 16 kilobytes of core store, four magnetic tapes, a card
reader and a line printer. This machine took up some 60 square metres of fully air-
conditioned computer room and was capable of doing a lot less than a laptop nowa-
days.

So what else did you get for your money? The answer to that is that you got a
support team: not just hardware engineers – you paid separately for them – but
people who knew your business reasonably well and had access to people who were
experts in your industry. This meant that the computer company, like your banker
or your accountants, were making a contribution to the strategy and running of your
business. Indeed, IBM had made this their unique selling proposition in the early
stage of their growth.

The reason the computer companies could do this was that the gross margin on
the hardware was between 50 and 60 per cent and the software they gave away with
the machine was very limited.

The arrival of the personal computer forced huge changes on both customers
and suppliers. Falling margins meant that hardware suppliers needed far greater
volumes of sales to make ends meet. Customers too were learning just how much
more they could expect computers to do. The suppliers turned to other distribution
channels – retailers and resellers who added value with software packages.