Michael Dell Just Started Writing the Third Act of His Company's Saga

NEWS ANALYSIS: Now that he has finally succeeded in taking his company private, Michael Dell has to prove he can write a successful third act for his company.

Act One was a smart guy with a smart idea. The guy was Michael Dell. The smart idea was to sell customers personal computers they desired at the price they wanted instead of pushing them to buy whatever was overstocked in the warehouse.

On the financial side of the equation, the ability for a company to get paid for the product before the firm has to pay its suppliers remains one of the best business finance models.

Act Two. This is the part of the play where Michael Dell goes on his own odyssey. Should the company remain solely a personal computer company? How about a consumer electronics company? Why not make the company an end-to-end hardware infrastructure company? Perhaps a services company like the Big Blue computing company once the object of jokes as too slow, too expensive and too out of touch with customers?

Michael wandered through the valley of discarded strategies, and the company wandered along with him. Meanwhile, cloud computing happened, tablet computing happened and smartphones happened. Unfortunately for Dell and the old guard, those trends happened without them.

And now comes Act Three. The one-time darling of the public markets is going private, and Michael Dell with 75 percent of the company is firmly in charge. The question—and this act is being written—is whether the company can once again get out in front of the business computing parade.

The old guard is in disarray as Microsoft, awash in money but losing clout, is looking for a new boss. A range war has broken out in the gentlemen's club that once was enterprise computing. Cisco is now selling servers, Hewlett-Packard is selling network gear, Microsoft is selling hardware, and EMC is selling pieces of itself.

Apple, which Michael Dell once belittled, has grown monstrous in size but now faces the low-cost competitors it once vowed to avoid at any cost. The most service-oriented technology vendor is Amazon Web Services selling metered enterprise computing instead of boxed hardware.

And it is Amazon that most resembles the Act One Dell in philosophy. Amazon builds its business by asking business computing customers what they want, creating services that fulfill those wants, and then offering those services at a price below the competition's prices and below what it would cost customers to build for themselves.

In an update on the Dell finance "pay us first and we'll pay the supplier later" model, the Amazon model of low, essentially fixed capital costs as more and more customers subscribe to the service is every bit as financially advanced as what Michael Dell cooked up in his college dorm.

Will Act Three be a success? Dell has done best when aligned with the same path as its customers. Business computing customers are currently in transition attempting to create a hybrid computing model that preserves their existing technology investments while preparing for a new cloud-based future.

The difficulty traditional technology vendors have is being caught between selling hardware into the data center while also selling services to the cloud-oriented business groups. If you are a technology vendor with one part of your organization selling hardware to the data center and another part selling services to the business groups, you will never get ahead of the parade.

The future of business computing is unfolding a little more south of Dell's Round Rock, Texas, headquarters. Over at its San Antonio headquarters, Rackspace is selling hybrid clouds for hybrid customers. The service Dell needs to create is a hybrid of traditional technology business practices that align with the state of each customer's cloud journey.

Dell managed to do this in Act One when it was able to match customization of personal computers based on customer preferences with high-volume manufacturing. Act One provides the outline for Act Three. Michael Dell just needs to make sure he doesn't flub the lines.

Eric Lundquist is a technology analyst at Ziff Brothers Investments, a private investment firm. Lundquist, who was editor-in-chief at eWEEK (previously PC WEEK) from 1996-2008, authored this article for eWEEK to share his thoughts on technology, products and services. No investment advice is offered in this article. All duties are disclaimed. Lundquist works separately for a private investment firm, which may at any time invest in companies whose products are discussed in this article and no disclosure of securities transactions will be made.