Dell Computer and Mass Customization

How Dell used technology to dominate the custom PC market

Mass customization is hard. Delivering products at scale to customers with heterogenous preferences is a complex, often tech and capital intensive endeavor.

One of the best to ever do it was Dell Computer. Dell leveraged adaptive customization¹ to address the long tail of consumer preferences and compete in a market full of growing, large-scale competitors. More on Dell’s history here:

“Started in 1984 as PC's Limited, the company aimed to sell IBM PC compatible computers built from stock components. Michael Dell started trading in the belief that, by selling personal computer systems directly to customers, PC's Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs. In 1985, the company produced the first computer of its own design, the "Turbo PC"…PC's Limited advertised the systems in national computer magazines for sale directly to consumers, and custom assembled each ordered unit according to a selection of options. This offered buyers prices lower than those of retail brands, but with greater convenience than assembling the components themselves.”²

To summarize the key drivers of success for pursuing a mass customization strategy:

1. Build a complete end product using stock components;

2. Sell directly to consumers so one can better understand customers needs, and design the most effective solutions to meet those needs;

3. Use high touch customer engagement to constrain the options available and manage manufacturing complexity; and

4. Price lower than retail brands and ensure greater convenience than assembling the end product themselves.

Eventually, as the market matured and Dell grew, its ability to scale this mass customization plateaued and margins eroded. But by that point it had achieved sufficient brand awareness and scale that it could leverage new strategic advantages to pursue its ambitions, and today it has a market cap of $84B.

Experts have claimed at many points in history that “mass customization is the future”, often justified through the lens of new technology advancement enabling more flexible and automated manufacturing capabilities. But my current thinking is that the success of a mass customization strategy has more to do with market timing than available technology. One could argue that Dell’s timing selling custom computers at scale in the mid-80s was just the moment in time when consumers had more custom needs than could be served by a stock Macintosh or IBM. The component manufacturers had likely just ramped up capacity playing games of economies of scale, and Dell was there to be a large scale component buyer of those suppliers who were likely soon facing excess inventory. If Dell pursued their mass customization strategy 10 years later, it’s possible it wouldn’t be what it is today.

Looking forward, I think there’s new markets developing where a mass customization strategy, if well-timed, could make quite a lot of sense. I’m on the look out!

1. Adaptive customizers offer one standard, but customizable, product that is designed so that users can alter it themselves. The adaptive approach is appropriate for businesses whose customers want the product to perform in different ways on different occasions, and available technology makes it possible for them to customize the product easily on their own. (Source: https://hbr.org/1997/01/the-four-faces-of-mass-customization)

2. https://en.wikipedia.org/wiki/Dell