Dell’s Dud

Wednesday, 1 October 2003

With what passes for fanfare in the PC world — exclusive interviews with a business reporter from USA Today — Dell last week announced its foray into the consumer electronics business. Most notably, the Dell Digital Jukebox (a.k.a. “Dell DJ”) music player, and the Dell Music Store. Comparisons to Apple’s iPod and iTunes Music Store were and are inevitable.

Of course, what Dell actually announced wasn’t its foray, but rather its upcoming foray. Neither the gadgetry nor music store is yet available. Nor any specifics, like, say, pricing and storage capacity. But we need no more than a glance at a promotional photo of the Dell DJ to fairly describe it as an iPod knock-off.

Based solely on this single promotional photo, I could even start taking potshots at the Dell DJ, pointing out why it’s not just an iPod knock-off, but an inferior knock-off. Like its oddly bulbous form factor and front face, which strikes me as a weak attempt at making it seem smaller than it really is. (Dell hasn’t released its dimensions, but I’m guessing it’s bigger than the iPod in all three dimensions, most especially depth.)

Or the on-screen menu, most of the items on which use two words (good UI design encourages one-word menu names — like the iPod’s). Or that they go so far as to use the word mode, which is arguably the dirtiest four-letter-word in the usability dictionary. (If you have to call it a “mode”, you went wrong.)

Or the Dell DJ’s scroll wheel, which looks sort of like the scroll wheel on a mouse, and which is therefore so obviously less usable than the iPod’s dial as to be laughable. (You can scroll through long lists with an iPod using one continuous circular motion with your thumb; with a DJ-like scroll wheel, you’re forced to scroll in short strokes, picking up your thumb each time, repeatedly, which wastes half your effort.)

No, I could take those potshots today, but I won’t. Instead, for the sake of argument, let’s concede that the DJ is (1) on equal footing with the iPod in terms of size, features, and usability; and also (2) that it’s a bit cheaper — say, US$100 less for a comparable model.

Guess what: Dell is still fucked.

Brand X

Such thinking is utterly contrary to PC-industry conventional wisdom. But PC-industry conventional wisdom, especially the kind put forth by Wall Street analysts, is nearly always wrong — at least regarding Apple. Here’s the gist of the conventional wisdom:

Apple Computer is an innovative company. Every few years, they come out with something incredible: well-designed, elegant, attractive, and original. But also expensive. And after Apple shows the way, more efficient companies come along and create knock-offs that are almost as good as Apple’s original, but cost a lot less. The knock-offs wind up dominating the market, while Apple is relegated to niche status, succeeding only with customers who are willing to pay a premium for a slightly better product. While Apple is busy striving for perfection, its competitors are striving for sales.

That sounds about right, no? This sort of thing just keeps happening to Apple, and it’s probably going to happen again with the iPod. And it’s unfair, because the rest of the industry would still be back in the fucking command-line Stone Age if it weren’t for Apple.

But it’s totally wrong. Well, except for the bit about the Stone Age, which is probably true.

At best, the aforementioned conventional wisdom is an accurate assessment of a single case: the market for personal computers with graphical user interfaces. Admittedly, that was a market that wound up being worth tens (hundreds?) of billions of dollars. No argument, Apple blazed that trail but blew the chance to occupy a large segment of the market.

But to what other markets has this formula applied? PDAs come to mind, meaning the Newton. But the Newton wasn’t beaten by inferior knock-offs — it was beaten by superior knock-offs. Newtons cost $1000 (or more) and weren’t even close to pocket-sized. Hypothetically, Apple could have produced a pocket-sized Newton that cost $500 and easily synched with your Mac, digital-hub-style. But they didn’t. Apple’s Newton epitomized the difference between superior technology and a superior product.

The iPod is a superior product.

Knowing Your Market

It’s long been my belief that Apple’s mid-1980s management grossly underestimated the potential market for personal computers in the business world, and that this underestimation was at the root of their failure to establish a larger market share.

The idea behind the Mac was that smart creative people could accomplish amazing things with the right computer. All previous computers had been oriented toward technical nerds; the Mac was oriented toward creative nerds. What I think Apple’s management foresaw was a computer industry comprised solely of niches. Your smart creative types would be using Macs, the accountants would be using DOS PCs, and some propeller heads would be using Unix.

In 1975, the market for personal computers was around zero. By 1980, it was small but growing fast. By 1985, it was big — at least by the standards of the previous ten years — and Apple had a big chunk of it. But within another decade, almost everyone in America with a desk job would have a computer on that desk.

Apple missed this, and marketed the Macintosh to individuals and small groups (and schools). The Wintel PC industry, in the large, took the opposite route, and marketed toward large corporations. Apple succeeded in terms of making the Mac successful in the markets they targeted; they failed in terms of seeing how big the corporate market really was.

Dell, as much as any PC maker, exemplified this corporate focus. The Dell brand stands for computers that are just like the other guys’, except a little cheaper. This brand message was and is hugely popular with corporate bean counters.

But this doesn’t do Dell a bit of good in the consumer electronics market. Corporations buy computers for their employees, but they don’t buy MP3 players. The iPod’s brand — and Apple’s — is strongest with individuals. Which is exactly the sort of brand that’s needed to sell portable music players.

The Macintosh wasn’t the first GUI, but it was the first useful one. In the same way, the iPod wasn’t the first portable MP3 player, but it might as well have been. Earlier ones that were small enough used solid state memory, measured only in megabytes. (Somewhere in the back of a cabinet drawer in our home office lies my wife’s 128 MB Rio, which held a whopping 11 songs; it hasn’t been touched since a certain someone bought her an iPod.) Ones with hard drives were too big to carry easily, and also lacked a useful way to navigate hundreds or thousands of songs.

But the iPod is not merely an engineering and usability success. It’s also a marketing success. Everyone knows what an iPod is, and what it does. And everyone knows that they’re cool.

Andy Warhol said:

What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca-Cola, and you can know that the president drinks Coke, Liz Taylor drinks Coke and, just think, you can drink Coke too. A Coke is a Coke, and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the president knows it, the bum knows it, and you know it.

The iPod is the Coca-Cola of music players. It’s not an expensive computer peripheral — it’s a low-cost luxury item. For $500, anyone can buy the best MP3 player in the world, the same one used by the world’s most famous, most talented music stars — like Moby, Beck, and Shaq.

I Know Pepsi, I’ve Drunk Pepsi, and You, Dell, Are No Pepsi

According to this Wired article by Leander Kahney, Apple’s brand is ranked first among American youth. Not the first computer brand, not the first gadgetry brand — the first brand, period. Regardless if you agree with the exact ranking — which is obviously debatable — there’s no dispute that Apple is a brand-image heavyweight. Its brand peers are companies like Nike, VW, and Levi’s.

Dell’s brand peers are boring-ass, nose-to-the-grindstone companies like HP. Having a stronger brand than Creative Labs is worth something, but not much.

If the iPod is Coke, its current competition consists of nothing but store brands, those cans that just read “Cola”. Dell, to be blunt, is no Pepsi. There is no Pepsi in the current digital music player market.

Which is not to say there couldn’t be. Sony, if it wanted to, could produce a serious iPod rival. Imagine a Sony pocket-sized, hard-drive-based music player that doubled as a PlayStation peripheral — take your music and your saved games with you. Very cool.

But that’s a big if, because Sony doesn’t sell hard-drive-based MP3 players. Mini Disc MP3 players could have been enormously successful had they debuted a few years ago, but now that Sony is finally selling them, their 5-hour storage capacity seems, well, quaint. Sony, the gadget-maker, is seemingly beholden to the head-in-the-sand digital music policies of Sony, the record label.

Apple’s “Rip, Mix, Burn” slogan, on the other hand, carries a clear message to music lovers: The RIAA doesn’t like MP3s, but we know that you do, and we’re out to make you happy, not the RIAA.

If not Sony, who?

There’s Microsoft, of course. Windows integration would pose no problem, and an Xbox tie-in similar to the aforementioned PlayStation idea would set it apart from the iPod. But: (a) Microsoft seems to have little interest in non-rights-managed media formats like MP3 — and consumers have little interest in rights-managed media formats like WMA; and (b) given the amount of cash Microsoft has already lost on the Xbox, I suspect they might be a tad reluctant to push further into consumer electronics. Microsoft certainly has money to burn, but that doesn’t mean they enjoy striking matches. Much like Dell, Microsoft’s brand strength is with corporate bean counters.

Nokia or Ericsson, maybe. Either could make an MP3-player/mobile phone that would take up a lot less pocket space than an iPod and a regular phone.

Am I missing someone else? Another company with enough branding, engineering, and software know-how?

This idea that the iPod’s position is precarious — that any day now, some cheaper weak-branded knock-off will knock Apple off its perch — is exactly backwards. The iPod doesn’t just lead in market share; it leads in mind share. Any competing player that doesn’t establish an iPod-caliber brand isn’t even competing at all.

PC industry pundits continue to assert that Apple can’t possibly succeed by selling excellent products at premium prices — that they’ll inevitably succumb to mediocre products at discount prices. Tell that to Nike.

Apple isn’t Microsoft — their goal isn’t to sell every MP3 player. Just a lot of them.