Tech shift: Dell or the 'differentiator'?

August 5, 2002

BY MICHAEL KRAUSS

Remember when the hub of packaged goods marketing was Cincinnati and Procter & Gamble? Then came the power shift brought on by supply chain technology. Soon the low-cost retailers, led by Wal-Mart, moved the epicenter of packaged goods marketing to Bentonville, Ark.

Is something similar happening in technology marketing? Is technology's spiritual center moving from Silicon Valley to central Texas?

Michael Dell, CEO of $31 billion Dell Computer Corp., based in Round Rock, Texas, is certainly trying to stage such a coup. Take the server market as an example. Servers, according to Webster's, are "computers in a network that provide services like access to files and peripherals or the routing of e-mail to other computers in the network." These aren't your PCs; these are the boxes that send e-mail to your PCs. They're the orkstations and the network components typically used by both business and government enterprises.

Dell's moving into servers. It's no secret. At a recent presentation in Chicago that I attended, a Dell executive said, "As technology starts to standardize, that's an opportunity for us." In English that means, as technology becomes more commoditized, efficient, low-cost providers such as Dell will prosper. They'll deploy their Wal-Mart-like supply chain power and their "Dell Dude" advertising prowess to keep gobbling up market share.

It seems to be working. In May, Dell beat Wall Street's revenue and earnings expectations. In fact, Dell has either met or exceeded its guidance to investors for the past five quarters. According to the company, "This growth was fueled by a 16% increase in shipments of standards-based servers, storage products and workstations," not the traditional Dell PC products.

Amidst the Dell marketing onslaught, Silicon Valley has been rather quiet. Of course, Hewlett-Packard (HP) based in Palo Alto, Calif., and Houston-based Compaq are ironing out their cohabitation arrangements. Sooner or later I'm fairly confident that HP CEO Carly Fiorina will begin to raise her new voice.

What about Sun Microsystems? What is it up to? For that Santa Clara, Calif. -based company, it's about adding value by customizing products and marketing them to vertical industries. Jeff Greenwald, Sun's senior director of marketing for Volume Systems Products, develops, manufacturers and markets computer servers for the small and medium-sized enterprise. "We continue to be optimistic," Greenwald said in a recent interview. "Our clients still view investments in technology as a competitive edge with the aim of becoming leaders in their vertical industries."

Greenwald claims this is true for most, if not all of the 15 vertical industries that Sun serves and focuses on-from life sciences, to education, discrete manufacturing, financial services and even telecommunications, an industry that's been hit pretty hard by the downturn.

So how does Sun compete with the likes of Dell, especially in the smaller enterprise environment where it might be most vulnerable? In a nutshell, Sun is adding value to its server line by customizing its products for different industries and functions within those industries.

Dell is betting on commoditization while Sun is wagering on industry-based differentiation. For Sun, this goes much further than simply naming and branding servers for different industries (although Greenwald has a custom product line just for the telecommunications industry called the Netra servers.) Sun is also segmenting its efforts: Greenwald works on "Edge" servers, products that literally work on the edge of the computer network, not necessarily within the core data center of the enterprise. He says, "E-mail, Web hosting, database updates, load balancing, security, firewalls-these applications are all Edge computing activities that are network-attached applications that don't run in the data center.

"Since September, demand for 'Edge' applications has accelerated whereas the large integrated ERP (enterprise resource planning) applications have been flat to down," he says. Greenwald is prudent about his customers' pocketbooks. He recognizes that customers have limited resources. They're going to spend on firewalls, security and network identity applications, and that's where he's targeted his product set.

Finally, Greenwald is partnering with product distributors and product installers, channel partners and systems integrators such as Accenture and PricewaterhouseCoopers to improve the odds of customers buying Sun products. "Installing technology is like building a house," Greenwald says. "You want the best architect, carpenter, plumber, heating expert and electrician. Sun is working to bundle services to assure (that) the end customer gets the best-ofbreed solution."

So who will win this dash? Will it be the low-cost provider, Dell, or the differentiator, Sun? Round Rock or Silicon Valley? The Wal-Mart surrogate or the Procter & Gamble stand-in? My bet is they'll both prosper, but life will never be quite the same in Silicon Valley because of Dell. It just won't be quite as much fun, nor will the Valley exercise quite the same level of power and influence. Technology products invented in Silicon Valley will become standardized and then Dell will take over.

Greenwald still remains optimistic about his region's prospects. He says, "The Valley will rebound because of the adjacency of engineering and funding. Thought leadership is pervasive here in engineering, finance and marketing.

"If you want to be the next Tom Cruise, go to Hollywood. If you want to be a banker, go to New York City. If you want to lead in technology, come to Silicon Valley," he says.

Maybe. Or maybe you should buy a Texas cowboy hat instead.

Michael Krauss is a partner with DiamondCluster International in Chicago. He can be reached at michael.krauss@diamondcluster.com or news@ama.org.