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Why Dell's Lack of Innovation Will Be It's Downfall |
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 Though most people don't see it, Dell has a problem. Right now its just a small problem, however, in the near future it is going to become worse. What problem is that, you say? Innovation. You see, according to Mr. Dell himself, innovation is for "other companies". He is very proud of the fact that his company spends so little on R&D. In fact, he has openly admitted that it blows his mind why anyone would spend so much money doing research in the first place. I wish that someone would tell him that if everybody thought the way he did we would still be in caves painting on walls. Now, we would be using the very best in rocks, sticks and mud to create our artwork, but thats about as far as we would have gotten as a society.
Success, it appears, has blinded the leadership of Dell. They are so concerned with the immediate future that they haven't bothered considering whether or not this business model will work in another five to ten years. Let me give you an example of what I mean. Mr. Dell is very much like Henry Ford and with a little help one can find some interesting similarities in their companies.
Lets take a trip back to the beginning of the automobile industry in America. After a very short time Ford dominates the industry with close to 90% of the market. This goes on for several years in which Ford's main focus is producing cars cheaper and faster than anyone else. Now, this was very good for the consumer because they got to buy cars at an ever cheaper price. But this was bad for the industry as a whole because very little innovation was done. Why? Because there was no competition. But despite all of this Ford flourished.
Enter General Motors. When GM first started everyone thought they were a joke. Who could possibly compete with Ford? Well, GM knew that they would never survive in a price war with Ford because they didn't have the infastructure to compete with Ford's plants. What did they do then? They began innovating. They didn't sell the cheapest cars but the began selling the best. In three years GM had almost 40% of the market, Ford had barely 30%. To this day Ford has never really recovered.
The similarities with Dell are obvious. As long as the market stays the same Dell will dominate, but when the market changes they will be unable to compete. A good example of this happening recently is Dell's attempt at making a music player, the Dell DJ. Here Dell saw a new market (i.e. digital music), one which they had no real experience in, and attempted to dominate it in the same way they did the computer manufacturing industry. They made a very cheap music player with lots of features and then turned it loose on the public. Much to their dismay it failed completely and the market was instead taken over by Apple.
Now, I have no doubt that this utterly confused Dell's leadership. They used the same strategy for selling PCs and it worked wonders. But using that same strategy for digital music resulted in a single digit market share. What went wrong? Well, the difference was that, for the most part, people know what they want in a computer. The market is already there (has been for decades in fact) and there are no major upheavals going on at this moment. Dell's business model is to see what is ultimately popular and then copy it in the cheapest way possible. The digital music landscape however is in constant flux. There is no one to really copy because the rules are being written as we speak. What people are willing to buy and how they buy it are being determined right now. The courts are playing catchup in the DRM department, online services like iTunes and Napster are trying to break the traditional theory of buying music and P2P services are thrown in just to make things even crazier.
Now do you see why Dell's DJ failed so miserabley? They were put in a position where they had to innovate, not copy, to succeed and they couldn't do it. Result? Apple now dominates the digital music landscape. And Apple, not Dell, sets the trends, the tone and the direction of this new industry.
But digital music players and services aren't what should worry Dell because those are just side issues, something for them to dabble in. No, what should really worry Dell is Cell technology. Cell tech could be something that radically changes the computing landscape. IBM and Sony having been working for quite some time on developing Cell tech and if it pays off Dell is in trouble.
If IBM and Sony decided that they weren't going to license this to Dell then they are left out in the cold. Apple already has strong ties to both IBM and Sony so they should be covered. As would HP who is also involved in this research. If they don't share then Dell is going to be the odd man out, producing very cheap computers that no one wants or needs.
Dell lives and dies with its suppliers. They are a one product company. HP can sell printers if its computer business goes under. Same thing with Apple, they could survive on iPod/iTunes alone if they had to, but not Dell. If its core business gets disrupted then everything falls apart. And they don't have the infastructure to design something new because they have no R&D department. The department they do have is focused solely on improving what they have and not looking to what they might build.
So how does Lenovo play into all of this? Lenovo beat Dell at its own game. In China they managed to out-Dell Dell! They produced dirt cheap hardware of questionable reliability at a price that Dell couldn't match. Result? Dell stopped selling computers in China. So, if a new tech comes along that seriously changes what a computer is then Dell will have no recourse in the USA and no alternatives overseas. So if Mr. Dell continues on his course of refusing to innovate then his company will join the host of others who have failed to change and disappeared from the industry. Someday soon Dell might join Compaq and Amiga in the footnotes section of the computer's history. |
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February 28 2005, 8:37 AM EDT, by |
Comments:
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| nhmacusr |
2/28/05, 12:42 PM EDT |
It is important to mention here that Dell is not a chip manufacturer and they don't license any technology there. They are simply a packager. Dell has grown through negotiation not through anything else. They can negotiate cheaper contracts. If Cell takes off, and that is still a big if - the proof of concept workstations aren't even built yet, Dell will be able to buy the chips just like anyone else will be able to.
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| james katt |
2/28/05, 12:57 PM EDT |
I wish Wal-Mart would advertise its cheap computers more prominently!
Wal-Mart's computers beat Dell's prices by a mile!
Where else can you get a $199 computer? Wal-Mart!
You can even buy the computer WITHOUT an operating system - use your own!
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| Bill Gates |
2/28/05, 12:58 PM EDT |
If WAL-MART would just ADVERTISE,
it would CRUSH DELL in the U.S., just as Lenovo CRUSHED DELL in CHINA!.
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| Minny Rippler |
2/28/05, 1:00 PM EDT |
WAL-MART! WAL-MART!
Where thou art?
CRUSH DELL like you did with your other competitors!
Till there is no sign, no fart!
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2/28/05, 1:00 PM EDT |
The analogy of Ford and GM is inapplicable because Ford essentially invented a market and a methodology that could support it while GM was pieced together through mergers of various independent car companies (Buick, Chevrolet, Oldsmobile, Cadillac etc). GM in its arrogance and might can be compared to Microsoft. The parallel that used to be drawn was between Chevrolet and Ford. This one GM division was once actually larger than Ford, but of course Ford survived and prospered and Chevrolet's fans moved to Toyotas and Hondas. If you look at the Chevies of the '50s, they're kind of reminiscent of today's Toyotas — practical and dependable designs that just work. For some reason GM just stopped being capable of building this kind of car, and so Chevrolet has dropped to being an also-ran.
By the way, I'm not a Ford fan. I drive a Chrysler. I don't really care about cars. But you will never convince me to use anything but a Mac.
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| Computer user |
2/28/05, 1:21 PM EDT |
Gosh, I don't know anyone who's even bought a Wal-Mart computer. I've been in 3-4 Wal-Marts where I live and haven't seen one yet.
Must be big sellers, eh?
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| Tim |
2/28/05, 6:28 PM EDT |
I know one person who bought a wal-mart laptop. It was crap, plain and simple. You pay for cheap [doodoo], you get cheap [doodoo].
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| jake |
2/28/05, 10:56 PM EDT |
Walmart sucks! Don't support a crappy company like this. They killing off the little and not so little stores that offer diversity and killing off better paying jobs for crappy low paying ones. All the stuff is made in sweat shops in China. Trust me this company will destroy the American economy.
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| schizzylogic |
3/1/05, 6:40 AM EDT |
More importantly than the Cell processor, Dell needs to worry about the inevitable collapse of the consumer PC market. Sometime in the near future set-top boxes and game consoles will be able to tackle most of the tasks current PCs are used for. Mainly being, accessing the Internet for communication, reference, shopping and entertainment. PCs will then primarily be used for content creation/media servers. And since Apple is the only company capable of creating and offering a usable end to end media solution they will continue to thrive as a computer company as all the others die a slow painful death waiting for Microsoft to develop a newer, better OS.
Another thing to consider is that IBM is turning PowerPC technology into the choice of a new generation. Intel, of course, being the CPU your father used. By the end of this year, the three major manufacturer's of game consoles (Nintendo, Microsoft and Sony) will all be based on PowerPC tech. IBM also opened the PowerPC specs so anyone can customize the CPU design to meet their specific needs.
I also believe in the near future Sony will begin to offer OS X/PowerPC based computers. Just makes sense, doesn't it? I think Sony is aching for a total solutions package they can sell to consumers in the digital age. Sony electronics products + Sony computer + OS X/iLife. Sold!
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| nhmacusr |
3/1/05, 8:41 AM EDT |
schizzylogic,
I do agree that we are going to see a slowing down of the consumer PC market. On many levels we already have. But as far as Dell is concerned, these are small potatoes. They are making their money from large volume enterprise contracts. If the consumer market falls for them, you will only see a small dent in the bottom line.
Many people are migrating to the power PC platfrom, but I don't think this is the death of the pentium or any other technology for that matter. As far as the gaming consoles go, they see what Apple is doing with graphics and that is where they go. You can have the best AI engine out there, but if your game looks like crap, it won't do well in the marketplace.
I don't think you will see this. Don't get me wrong, I do think that there is deals cooking between Sony and Apple but I think they are more content based than hardware based (it is no surprise that Sony is the largest distributer of movies). I think you will see collaboration on hardware not adoption. You won't see a sony computer running OS X, but you will see a nice packaged sony HD TV conveniently packaged with a mac mini.
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| Mike Sieber |
3/3/05, 8:30 PM EDT |
I'm going out on a limb here. I think that Dell's position, in a way, makes sense. There is and always will be a certain segment of the population where the cheapest price is all that matters. They don't want or care and cannot afford higher priced innovative products. I think those are the people Dell caters to. And in that respect, they don't need to worry about innovation or design. Just slap those chips in a box and be done with it.
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| matty |
3/4/05, 12:32 AM EDT |
From The Register:
"Rollins recently dubbed Apple's iPod a "fad," and he may well miss out on the iParty if he doesn't get down to the iBar quick."
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