No cell for Dell. According to Kaufman Bros. analyst Shaw Wu, carriers rejected prototypes from Dell because the “lack of differentiation.” As product managers, we know the importance of keeping up with the Joneses, but we also know the importance of including differentiated value in our product offerings.
The rumors that Dell would offer a cell phone (re) started when Ron Garriques, former EVP and president of Motorola’s mobile devices division joined Dell about two years ago. There are many more articles and speculations from that time period (just search for them).
In January, Silicon Alley Insider reported a lack of denial from Dell CEO, Michael Dell in January. A reader of the Insider, claiming to be “close to Dell” suggested a September 2009 product availabiliy, and calling it a “MePhone.” They particularly called out 09/09/2009 as the date. Tyner Blain (the company) was started on 05/05/2005, so maybe that’s a good idea :).
Barrons just reported Wu’s comments that carriers essentially rejected the Dell cell phone prototypes because they were no different than current and pending product offerings from competitors.
Dell recently filed a revamped retention plan for Garriques to stay through March 2010, according to the Austin Business Journal’s reporting a couple weeks ago of recent SEC filings.
The entire Dell phone thing may be a farce (I don’t think it is), but it doesn’t matter. The product management perspective on this situation (real or otherwise) is still interesting.
Should Dell enter the Cell Phone Market?
There are two sides to this question – the cell phone (and more particularly, the smart phone) market is hyper-competitive. In Dell’s strong markets (corporate, channel), there’s the Blackberry devices from RIM. In Dell’s stated focus markets (consumer, retail), there’s the iPhone and the Palm Pre (which is not a product yet, but has generated a lot of buzz). Competition in either of these markets will be tough, as they are both pretty saturated, and both are under pressure with current economic conditions in the US. Companies can easily cut back on subsidies for cell phones, and consumers can easily delay purchase of a replacement phone. Customers in either market would need a compelling reason to purchase from Dell.
On the other hand, computer and smart phone technologies are rapidly converging. Phones get more powerful, and people are shifting “traditional computing tasks” to their phones because of the convenience of having a phone where having a laptop is impractical. Computers are getting smaller every day, and new usage patterns are developing. You could argue that a computer manufacturer should be on top of this movement, and to be best positioned to have insights into what a “hyper convenient computer” should do, they should get into the smart phone market.
When you apply Kano analysis to the potential feature set for a phone, everything you might add to the phone falls into one of three buckets: must be, more is better, and surprise and delight.
Kano analysis recap
Kano provides three relevant classifications of requirements (the fourth category is redundant). All requirements can be placed in one of these categories.
- Surprise and delight. Capabilities that differentiate a product from it’s competition (e.g. the nav-wheel on an iPod).
- More is better. Dimensions along a continuum with a clear direction of increasing utility (e.g. battery life or song capacity).
- Must be. Functional barriers to entry – without these capabilities, customers will not use the product (e.g. UL approval).
What Wu points out is that while Dell may have identified all of the must be requirements, just doing the minimum to be considered as a product is not sufficient to be accepted by your customers. With the competitive landscape of the cell phone industry, these capabilities are necessary, but not sufficient. The cell phone market is not a pure B2C (business to consumer) market, because the carriers (the providers of cell phone connectivity services) play such an integral role in the ecosystem, they have to be considered as customers too. This is because the consumers are willing to accept long-term, very expensive contracts with service providers. Those contracts allow service providers to subsidize the price of the physical phones (to the tune of $100 to $300 per device), in exchange for a contract that is worth over $1000 to the service provider. For a phone manufacturer to penetrate the market in a meaningful way, they have to get these subsidies (from the service providers) in order to be remotely competitive on price with other phone providers.
Wu’s assertion is not that Dell failed to satisfy the requirements of the service providers, but rather that the service providers determined that Dell’s offering to consumers was insufficiently differentiated from other phones.
In addition to incorporating the must be capabilities into their phone, Dell also needed to have enough more is better features – like battery life, reception, screen size, (lower) weight to be perceived differently by consumers. Dell also could have taken a surprise and delight approach, and introduced new capabilities that essentially make the competition irrelevant, by carving out a new market space. Dell could have also focused on design elements – the same feature set, but in a more desireable device.
For fun, we can imagine some capabilities that Dell might have introduced that would have made their cell phone distinctive, allowing them to reach agreements with service providers to offer subsidies that would make their phone competitive in the market.
- Double the battery life, double the dB gain (strength) of the signal, cut the weight in half – all “obvious” more is better features – so they are probably also currently impractical, or Dell would have done it. Note that these would have had to be achieved with protected intellectual property, or all of the other phone makers would also be doing it (or doing it very soon after Dell did).
- Create a social networking ecosystem around the phone – a surprise and delight approach to making the phone not just a phone, but a social networking device or entertainment device. There are many solutions that solve parts of this problem (facebook connect, instant messaging, twitter applications) by connecting the phone to a customer’s social network. No one is really providing a “social networking platform that is also a phone” today. While I don’t know what this magic combination of features would be, I do know that it would be possible. With android, the open-source operating system from Google, Dell software engineers have the ability to develop this, and encourage the open-source software community to contribute. Flock is an open source browser that did this by building on the core software of the Firefox brower. This could be developed either for consumers or business users who can use the product for managing their networks and contacts. Imagine out of the box integration with Salesforce.com, and what sales rep wouldn’t want this?
- Create an entertainment ecosystem in which the phone plays a key role – the iPhone and iTunes work together to create this, in a walled-garden of interoperability. Dell could develop a multi-vendor (of media), open-source, device-agnostic media solution for “everyone else” and extend the android operating system to work in this environment as well. An alternate proprietary system probably wouldn’t work, it would just be “more of the same.” Many large media companies are trying to figure out the right models for digital distribution of content. Tivo lets you “time shift” and watch a show whenever you want. Imagine integration with your smart phone, that also let you “location shift” and watch it wherever you are, whenever you want.
- Change the way networking works for your phone – develop a mesh network with your phone (every phone connects to every other phone in range to share networking resources). This will create problems with today’s battery-life, and todays service-provider business models. But imagine if hulu.com allowed you to download tv shows and movies to your phone (with advertisements embedded in the video), and then you could share those shows with peer-to-peer technologies like bittorrent. More people would watch more video (and therefore more attention would be dedicated to advertising), and people would want the phones that could do this.
- Figure out a way to improve on location-based advertising, figure out how to solve more customer problems with the phone (phone + operating system + applications).
We don’t have any of the details about specifically where the Dell phone (if it exists) fell short. But assuming that it did, we can have fun speculating about things that Dell could do that would make their product distinctive. More importantly, we can learn from how Dell has apparently stumbled and apply it to our own products. Are we just doing more of the same?
Another key idea – Wu said “…versus current and coming products…” It is not enough to just do more than “yesterday’s competition” – you have to be ahead of tomorrow’s competition too. This dynamic is generally true, but magnified in the cell phone market, where the service providers know what tomorrow will bring.