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Monday, May 24, 2004

The Distributor vs. the Innovator - Dell Vs HP via NYTimes

The confrontation between Hewlett-Packard and Dell is more than a particularly lively bout of competition in the $106 billion-a-year printing industry. It is a clash - and an intriguing test case - of two different models of innovation and corporate strategy.With its engineering roots and its corporate tagline "HP Invent," Hewlett-Packard is committed to spending heavily on research and then funneling that home-grown technology into new products. Those products, in turn, must be able to command profits high enough to keep financing the corporate invention machine. Hewlett-Packard's printing business is a showcase of success for internal innovation. Dell, by contrast, is pursuing a "virtual" research-and-development model. It does some engineering development work itself, but that typically amounts to tweaking an existing product. Dell's main role is to scour the world for technology, fine-tune the products of corporate partners, wring costs from the supply chain and sell products directly to customersThere is plenty of technology being developed by companies around the globe, Dell executives insist, but the technology often lacks an efficient path to the marketplace. And as it gets bigger and bigger, Dell is becoming the Wal-Mart of high technology, a marketer so powerful it can set product standards for its suppliers.Today, Dell is an upstart in computer printing compared with Hewlett-Packard. Dell sold an estimated 1.5 million printers in its first nine months in the business last year. This year, analysts estimate that Dell will sell 4 million printers or more. Its revenues from printers and ink cartridges have already blown past the $1 billion-a-year threshold, the fastest takeoff ever for Dell in a new product category.Yet the printing group at Hewlett-Packard reported nearly $23 billion in revenue last year. It sold 43.6 million printers.A central issue for Dell in printing is how easily it can get its hands on technology that is comparable or nearly comparable to Hewlett-Packard's. Dell says there is plenty of powerful printing technology out there, and that its goal is to work with suppliers and use its efficient distribution system to lower the cost of printer cartridges.Over time, Dell contends it can drive down the cost of printing by 25 percent to 35 percent a page.A better business model,Mr.Dell explains, will beat a better technology, and he insists the odds are on his side in the printing business over the long run."The days of engineering-led technology companies are coming to an end," Mr. Dell declared.For her part, Ms. Fiorina will take that bet. "We're the biggest,'' she said. "We're the best, and we're getting better in a growing market."

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