Waiting for Dell's iPod Moment

In response to my article last week, Luigi wrote:

Dell has one of the worst reputations in the business for customer support. Does this affect sales? Well, how did Dell manage to slide so much? Where are the repeat customers?

Perhaps Dell will learn. Michael Dell is young, familiar with the business (he's no John Scully at Apple in the 90s trying to figure out what canning Pepsi had to do with personal computers), and is not an idiot such as Steve Ballmer. There is hope, but should you buy based on hope alone?

Microsoft has languished for years between $20 and $30 and they have no competition, just bad products and worse management. The competition in the laptop market is fierce and low prices don't seem to be the answer, at least not judging from Dell's performance.

Desktops are not a growth area or even a replacement area in the retail market, so where is Dell going to make a breakthrough? Cost cutting, improved productivity, and all the MBA buzzwords are well and good, but do lower prices alone sell enough units?

Will I buy Dell? No.

I'll address this point by point.

Customer service from all computer makers has been dismal for years. Longtime readers know the saga my office went through a year ago when upgrading to all new equipment from HP. Total disaster. It took six months to get things working right and I'm not sure it would have ever come together if not for a colleague's brother-in-law who happened to work in HP's level two tech support. When I asked him why nobody at level one thought to move us up the ladder after their solutions failed, he just shrugged and apologized, and said it happens all the time.

For a good laugh, consider that HP is a J.D. Power & Associates Certified Support Provider, a designation they repeat every minute or so while you sit on hold for ages waiting to be given ideas such as checking to see if the computer is plugged in. If you care to read more, check out the articles I wrote last April.

I'm not defending any bad customer service provided by Dell, but rather pointing out that dissatisfaction with product support looks to be endemic to the PC industry. I happen to know from other mails from Luigi that he uses a Mac and will undoubtedly point out that Mac users are mostly satisfied and tend to not know anything about Apple's customer service because they never need it. True, but not pertinent here.

I happen to have heard from a number of people that Dell has pretty good customer support. I've heard of the company delivering replacement machines to remote locations such as the Rocky Mountains where a friend of mine works from home exclusively on Dell machines. Another friend in Los Angeles told me of Dell sending a tech support person the next day when the toll-free help line couldn't fix the problem. I'm sure every PC company has good and bad customer service stories.

On this point, let's just say that Dell is no worse than anybody else.

As for shares of Microsoft languishing between $20 and $30 for years, they did until achieving a decisive breakout above $30 in October. I know because The Kelly Letter owns shares and we were waiting for Vista earnings, Xbox successes, and online inroads to finally pay off in Redmond, and they have. I expect that continue.

Luigi's point, though, was that if monopolistic Microsoft could fail to produce much stock performance for years, what hope can competitors-in-every-direction Dell have? He says low prices aren't the answer and hints that industry growth overall is limited.

I agree that low prices aren't the answer. Design, branding, and distribution are the answers. This is the main reason I'm interested in Dell's turnaround. Dell has shown that it finally understands that computers aren't commodities, any more than jeans or handbags or portable music players despite all of them appearing to be so.

Anybody can make jeans, but you want to wear Levi's. Anybody can make a handbag, but not like Vuitton's or Hermes's. Any electronics company can make a portable music player, but whose can touch the iPod?

Design matters. The brand of a well-designed product can take market share from competitors, creating a growing company even within a stagnant industry. If Dell makes computers that are far cooler than machines from other PC companies, it will be able to charge more and still sell more than its competitors.

What Dell would need to do is get widespread distribution to be sure people see its products and want to buy them, then pack that distribution channel with cool new products that create product lust. Let's see if Dell's doing that.

On Friday, the company announced that it will begin selling its XPS and Inspiron notebook and desktop computers at more than 900 Best Buy stores in January. That's in addition to the 3,000 Wal-Mart stores already carrying Dell's machines. If we add Bic Camera in Japan, Carrefour Group and Carphone Warehouse in Europe, and Gome in China, Dell's number of retail outlets worldwide jumps to almost 10,000.

That's a pretty big retail push and should get Dell positioned to roll out slick new designs. Sexy brands combined with retail presence could finally be the spark needed to reignite the shares.

In response to the same article that inspired Luigi to write, I received this email from John Q. Pope in Dell's Digital Media Group:

We wholeheartedly agree with your assessment that design and branding can make a difference. We've bolstered our design efforts considerably over the past few months and the market feedback on our new XPS consumer products has been very positive.

He mentioned a $4.5 billion marketing deal with WPP Group and then showed off Dell's all new World of Warcraft notebooks. Have you seen these things? There's one for the Alliance team and one for the Horde team. They're amazing, and you can get yours starting today.

Don't miss that site. As one French comment reads, "C'est une bombe!" It's the beginning of the new Dell we need to book the profits we want.

We're counting down the months to Dell's iPod moment.

Disclosure: Long DELL

Comments

[frankz00:]

I think Dell should close up shop and give the money back to the shareholders. Ba rump um.

But seriously folks, if you're waiting for Dell to have an iPod, keep waiting. I wouldn't hold my breath on anything close to that happening.

2007 Dec 11 08:50 AM

[Tom B:]

All these PC makers are dependent on MSFT and the only thing that keeps MSFT afloat is that IT managers LOVE awful products that require constant maintenance. It keeps their staffing levels high.

2007 Dec 11 09:25 AM

[top_tier:]

You're in denial, it's very pertinent.

"...he uses a Mac and will undoubtedly point out that Mac users are mostly satisfied and tend to not know anything about Apple's customer service because they never need it. True, but not pertinent here."

And the rest of your commentary that design aka branding will turn Dell around is also wishful thinking. That's like trying to put a Ferrari around a lawn mower engine...not the perfect analogy, but you get my drift.

Dell's legacy has been about getting better margins from efficiency, but they're still mostly beholden to MS for the experience. You can't trump the legacy of efficiency with brand building alone, the experience goes hand-in-hand as part of the brand equation. Dell has to now become an innovator if they ever wish to see growth again. I don't see them ever being an innovator much less market leader as a software developer.

2007 Dec 11 09:43 AM

[oceandude:]

There's a fundamental concept that you are missing: Apple is a software company. Dell is a hardware company.

Dell is tied to Microsoft on the software side. Windows is simply crap. You can dress up the hardware all you want but in the end it is still running crappy Windows.

If you want an "iPod moment" from Dell they need to take a hard look at breaking the status quo. Perhaps Dell could help out with improvements in Ubuntu Linux and start pushing that heavily on their gear. Just one idea, but they won't do anything like this because they have no guts.

2007 Dec 11 12:02 PM

[ppgreat:]

The big problem is that Dell tends to do derivative design work too long after the original has run at Apple. And in cheap plastic. Their new all-in-one is just the latest in a long line of ho-hum designs.

2007 Dec 11 12:49 PM

[KenC:]

<<As for shares of Microsoft languishing between $20 and $30 for years, they did until achieving a decisive breakout above $30 in October. I know because The Kelly Letter owns shares and we were waiting for Vista earnings, Xbox successes, and online inroads to finally pay off in Redmond, and they have. I expect that continue>>

I think basing your premise on the assumption that MS has made a real "decisive breakout" is the weakest part of your argument. Vista and Xbox earnings need to show they are sustainable. And, Google is just eating their breakfast, lunch and dinner in online advertising search.

2007 Dec 11 01:52 PM

[Echo To All:]

dell will never have an iPod moment. It is not in their culture. They need to clearly define the computers for corporate and consumer.

boring and cheap = corporate (HP is eating their lunch)
exciting and inexpensive = consumer (apple is eating everyone's lunch... also exciting means a lot. dell has to actually work and make programs work easer, faster and better. people should want to own a dell... but they do not know how to make that happen.)

i'll just stop there and not even go into other aspects of their biz.

but an iPod moment for a company that is not culturally set up for an iPod moment... will never happen until that culture changes.

2007 Dec 11 03:09 PM

[cgibson911:]

From the very beginning Dell has never been more than another "clone" manufacturer (like Acer, Gateway, etc) with a "Build-to-order" (BTO) business model that differentiated them. In the 90's that model added value to plain old vanilla product distribution. Well now that the business has matured to the point that BTO no longer adds value (IT Mgrs would rather handle their own imaging, etc. Unless Dell comes up with something LIKE an i-Pod (not necessarily an i-Pod competitor) they are doomed to become just another company chasing the "best-of-breed" ie HP/IBM. Hey ... maybe they need to bring back the "Dude, you're getting a Dell" guy.

2007 Dec 11 04:20 PM

[jswede:]

what a bunch of fluff! his arguments hold water like a sieve, and I've not seen a more rambling, less cohesive set of arguments from a blogger all year (and this from an English major no less - per his own site)... Were any links relevant? This whole post is a bunch of catch-phrases, diversions, and wishful thinking. what an incredible waste of space and my time.

Jason, go back to publishing your little joke manuals so we can all reap some alpha from you and your constituents.

Seeking Alpha hits a new low... apparently anything that says "iPod" or "Apple" gets published around here... I'm embarrassed for whomever at SA chose this piece.

2007 Dec 12 02:37 PM

[brewer:]

Come to think of it, Dell already had it's iPod moment, but apparently we have all forgotten (it barely came to mind for me at least).

Remember the Dell Digital DJ? Neither does anyone else, except the 12 suckers that actually bought one. That, like their lousy, generic, limited to DOS only computers, is totally dependent on Microsoft.

But Microsoft KILLED 'Plays-for-sure' so you can't get (legal) downloads for it.

Michael Dell BEGGED Steve Jobs to let him sell OS X a year or so ago.

How FUNNY! This from the jerk who offhand commented that Apple should close the company and refund the money to the shareholders.

Ol' Mike should take his own advice!!! (And apparently I am not the only one to think so.)

2007 Dec 13 01:54 AM

[brewer:]

Oh, yeah, PLEASE EXPLAIN how Apple users who never NEED the warranty are irrelevant to to customer service!?!?!?!?!?!

That does not 'compute'. A warranty you don't need is the best warranty there is.

One MORE thing. I have NEVER heard anyone say Dell's support is 'pretty good'. That sounds fairly lame, but what I always heard is they are in phone hell talking to someone in India who can barely speak English. About all they can say (with heavy accent) is that it's Microsoft's fault. And God only knows when Microsoft ever let anyone through in phone support. Do they even offer that anymore? I probably havent' called them in almost 20 years. Even then, you would typically wait on hold for an hour, only to have them blame the board fitters (HP/Dell/generic PC hardware vendor du jour).

There is no innovation in PC board plugger companies. They only do what M$ lets them, and that's not much.

I recently noticed Dell selling at Walmart. Got a good laugh out of that. Dell famously copies every move Apple makes (where they can, little stuff mostly). But I guess they don't have the balls to open their own stores. Look what that did to Gateway. A PC company has no pinache, they can't open a store. Apple's stores were wildly successful even before iPod.

2007 Dec 13 02:03 AM

[brewer:]

Uh, Apple's support is definitely not dismal, it's fantastic. You can go into the store and get FREE service. The service is mind blowing, but it is getting a little harder to obtain as they are growing in popularity (sometimes you have to make an appointment now, but the basic advice/basic service is still free and spectacular).

Or, did you mean all PC companies (the generic ones relying on Microsoft) all have 'dismal' customer service. I would defintely aree with that.

2007 Dec 13 02:10 AM

[Chester:]

Another PC growth factor which might hlep Dell is emgerging markets (BRIC). 500 millions of Chinese will buy laptop in the forthcoming 5 or 10 years alone. Some of the consumer behaviors already existent in 1st tier cities will repeat in numberous 2nd tier and 3rd tier mainland cities in China. Dell needs to grab the psychology of consumers in BRIC markets and establish itself as an international, status-elecating and reliable brand. There are room for better design to cater to BRIC countries' specific conditions, such as crowded living spaces, limited wireless access etc...

Dell is heading the right direction to transform from a dull PC manufacturer to a popular consumer electronics brand name. The hybrid model of direct and retail is being tested and developed within Dell. Overall, at least we see that Dell has a very strong will power for change and a quick execution to embrace the change.

2007 Dec 14 12:52 AM