Dell, Dell, Wherefore Art Thou, Dell?

When it comes to mobile phones or tablets (the newest PC form factor), it’s all Apple, all the time.  Unfortunately for Dell, the question is, “Wherefore art thou Dell?”

The bottom line is that Dell is a latecomer to the smart phone party – and being a latecomer is a very bad position to be in.  A company can spend a lot of money in the attempt to buy a “seat at the table”, but Dell has shown no inclination to spend money to create a significant position for itself in the smart phone space.  Moreover, even if Dell spent the money, there is no guarantee of any success in that strategy – ask the Chinese as they as they try to spend their way to the “table” of accessing the world commodity markets.

Therefore, what can a startup learn from Dell’s obvious failure to enter the smart phone market almost four years ago, or shortly after Ron Garriques joined the organization?

Be tactically bold – even though the tactics chosen will be perilous – at best.

A startup typically enters a market sufficiently early such that the strategy (developing a smart phone) and tactics (choosing the OS and the hardware configuration) are more closely integrated and less separable.  For example, when Research In Motion made the strategic decision to build smart phones about 10 years ago, it chose the tactical path of developing its own operating system for its Blackberry phones despite the fact that Microsoft was aggressively marketing its OS.  When RIM introduced its smart phones in 2001, no one really talked about the choice it made of developing its own OS.  Apple made the same choice in 2007 when it developed its own operating system for its iPhone.  These companies chose to be dependent on their own respective organizations for innovations and development, rather than hope that a third party could react urgently to its needs.  Those choices by RIM and Apple were clearly the right thing to do as the market was early.

As time passes and the market develops, the individual choice of tactics become less integrated and more separable.  The tactical choices become even more important.  One must choose the winning path, as there is less time to respond to competitors as they pivot especially those competitors that are willing to spend the money to buy a seat at the table.  In 2007, Google introduced the Android OS, providing hardware vendors with a new tactical choice to incorporate a new and “independent” AndroidOS rather than develop a homegrown OS, or choose Microsoft.  Even Dell announced that it was joining Google’s Open Handset Alliance in December 2008.  The market expected a Dell smart phone running AndroidOS to be introduced “soon”.  For all intents and purposes, that didn’t happen.  Only Dell’s most senior leaders know the truth regarding this unfortunate paralysis.

So what does a large hardware vendor, once known for changing the PC industry, and valiantly attempting to redefine itself to the realities of the current mobile phone market, need to do?  Make a bold tactical announcement such as choosing Microsoft’s Windows 7 as the OS for its new Venue Pro smart phone.  Dell really had no other choice.

The sad reality is that choosing Windows 7 was Dell’s only choice if the company has any hope to differentiate itself in the smart phone market.  Developing its own OS was no longer a relevant or viable option in view of the growing popularity of AndroidOS by numerous other handset vendors.  When there is no market, a startup can spend all the time it wants to develop its own solution.  When the market is well developed, there is no time to stare out a window and be creative.  Furthermore, it couldn’t choose RIM’s BlackberryOS, Apple’s iOS, or Google’s AndroidOS  since it had to choose a path of differentiation.  RIM acquired real-time OS vendor QNX to redevelop and renew the BlackberryOS some time ago.  The only other major real-time operating systems that could have been purchased for a similar overhaul are owned by Intel (VxWorks and pSOS).

What is left?  Microsoft Windows 7 was the only choice left to Dell.

Moreover, how does one emphasize the differentiation?  Perhaps a little outrageous hyperbole – even though everyone understands it to be outrageous hyperbole?  Last week, Dell announced that is replacing 25,000 Blackberry units used by its employees with its own new Venue Pro smart phone running on Microsoft’s Windows 7 operating system.  While the announcement by itself was something that you would expect from a vendor promoting its own device, Dell’s CFO Brian Gladden added, that Dell was “kicking out” Blackberry.

Question: Why is Dell’s CFO making this comment, rather than Dell’s recognized leader of the smart phone/consumer group – Ron Garriques?  Is Dell finally replacing Garriques, as he was noticeable by his absence at the Dell analyst’s meeting last June?

That would be a bold move as well – but Dell has few choices left.  Hopefully, Dell will have better luck in the tablet market using Windows 7 as the OS since this market is still an early stage market – but that is not how the smart money will be betting.

UPDATE: DELL announces today (November 18, 2010) that Ron Garriques is resigning effective January 28, 2011, and the consumer group (or Communications Solutions group)  is being re-organized into other units.

We are not surprised.  Anyone in the technology industry from Chicago knows the real story of Garriques and Motorola.

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By Richard Piotrowski CFA is a former #1 ranked securities analyst, and the Managing Partner of Outram Research LLC, which focuses on assisting startups and prospective turnaround companies define an executable product strategy, competitive strategy, and an exit strategy.  You can follow Richard on Twitter: @Angelpitchdoc.  He can be reached at richard@outramresearch.com, or at his blog: angelpitchdoc.wordpress.com.  Also check out our website: www.outramresearch.com

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About Richard Piotrowski, CFA

Richard Piotrowski, CFA, is a formerly a #1 ranked securities analyst, who has 20 years of experience building, dissecting, and fine tuning presentations, business models and valuation models of all kinds. The experience has been gained working in the investment community on both sides of "Wall Street", on "Bay Street" (Canada), as well as on "Main St." as Chief Financial Officer, Chief Operating Officer, as well as Evangelist and Marketing Director, where he focused on building messaging for solution sales opportunities based on value positioning, high ROI and fast payback. Richard joined Canada’s investment banking community in the early 1990s as an analyst following technology companies. He was recognized within two years by the Street, and was ranked "First" for Quality of Research in the survey of institutional investors conducted by an independent advisory firm – Brendon Woods. Richard was also the founding member of the internet technology research practice at two boutique investment banks.
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