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.

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