Dell found IBM's markup by pricing every component

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 5:54

   You know, at the time you're taking part at IBM, you know, this is, I'm pretty sure before, you're a teenager, so this is before you start Dell officially. But it's, you know, and I didn't know this about IBM. I had to go back and look it up. It's like the most valuable company in the world at the time. It was the first company to ever hit $100 billion market cap, which also blew my mind. But you take it apart and you're like, oh, wait, it's just components.

2. 6:16

   This is the biggest company in the world. And this is their product. Like, and if you take it apart, it's just made of components from other companies. And it's just like, it's implied, or at least this is what I was reading through the lines when I'm reading your book. It's like, well, I can do the same thing. Like, what are they doing here that I couldn't do? Did you have that thought? Yeah, absolutely.

3. 6:37

   I mean, so it's back to when you open the thing up, you look inside, what's there? Well, there's chips, right? Yeah. And there's wires and there's power supplies and disk drives and all these components. It's like, well, where do those things come from? Who makes those? What's inside those? How do they make those? And so you sort of peel the onion, you know, and you understand all the different elements.

4. 7:03

   And, you know, when I originally got the first IBM PC, you know, yeah, probably took it apart before I turned the thing on, just to see what's inside. And one of the really cool things back then was that you didn't have these sort of application-specific integrated circuits. They call them ASICs, right? Or these big sort of chips that nobody really knows what's inside except the designers. All the chips were off-the-shelf chips.

5. 7:43

   So, you could see, you could sort of understand what the logic flow was and what each chip was supposed to do inside the circuit. And inside the IBM PC. None of the chips were made by IBM, right? And none of the disk drives were made by IBM. The power supply wasn't made by IBM. And so, you know, I was also interested in the economics of it. It's like, well, what does this chip cost? What does that chip cost?

6. 8:16

   And you sort of add it all up, and then you compare it to the cost that they're selling the thing for, and you go, wow, this is, they're really charging an incredible markup for this. That's an incredible insight to have as a teenager, though. It's like figure out what the actual cost of the components are and then go look up. And it sounds like what Elon did with rockets. It's just like the Russians won't sell it to me.

7. 8:40

   I'm on the flight back. These are famous stories in all the books. And he's just like, well, what is a rocket made of? Like, OK, well, there's a list of components. How much do those components cost? What you just said is like you just kept asking questions like, oh, I'm going to take it apart. It's like, OK, well, this is all the components. This is what it is. This is like where you get them from.

8. 8:57

   Look, the company name is right here. I can just call them up and find out how much this is. Well, you could go to the distributors and you'd say, you know, okay, how much does this chip cost? And they'd say, well, it's this price for 100 of them, right?