Monday, August 17, 2009

Dell's Cell Phone Strategy: Off To A Fizzling Start

. Monday, August 17, 2009

By Peter Burrows

Over the past two years, Dell Inc. has been working on an expanded consumer strategy, but wisely wanted to keep quiet until it had its story just right. After all, Dell was humiliated by Apple in the MP3 player market (remember the Dell DJ and Ditty?) and by an unsucessful foray into the TV business earlier this decade. To prove it was a serious player, it couldn’t afford another miss, my sources told me. Executives admitted they needed a great re-launch, with something far more inspiring than its mostly me-too PCs. And it needed some inventive idea to show how it would make money, versus reams of entrenched rivals, from Old Guard cellphone makers to Apple Inc.

Which makes the first appearance of a new Dell consumer product such a disappointment. Rather than a splashy, well-orchestrated unveiling of its own, the small, touchscreen-based device, called the mini3i, was included in an announcement by China Mobile, the gigantic Chinese carrier. Although there’s scant information about the device, what is known is hardly winning rave reviews. For example, the device doesn’t support WiFi or 3G networks, but will only work on so-called 2G networks—the kind of basic pipes we all used when cell phones were only for making phone calls.

A Dell spokesman says the device is just a “proof of concept mobile device prototype,” rather than a real product. But words like “proof-of-concept” and “prototype” usually imply cool and cutting-edge. Unless Dell has found a way to pump applications and other services from China Mobile’s just announced Mobile Store over those pokey 2G networks, it’s hard to see why such a phone would stand out.

All of which raises still more doubts about Dell’s ability to expand its consumer reach. After all, the company has been at it for a few years now. The company signalled its intentions when it hired former Motorola cell phone chief Ron Garriques and former Nike designer Ed Boyd. It was Garriques that championed Dell’s purchase of Zing Systems two years ago, and crafted an ambitious strategy to use its digital media software to provide a platform so dozens of devices and popular Net music and video services could work with each other. The goal was to put Dell at the center of a new open ecosystem, that would provide real competition to Apple’s iTunes. As Michael Dell put it in an interview for that story, “We think we have a vision that will provide an attractive alternative to the single device and single service strategy that exists today.”

Evidently, that particular vision isn’t going to see the light of day. At one point, Dell had hoped to sell more than a million of a device built around Zing software, for playing streamed (as opposed to downloaded, a la iPod) music and other content, one source tells me, but that product has been killed. By this Spring, the company was trying to interest carriers—without success—in more conventional cell-phones built around Windows Mobile or Google’s Android software. Indeed, the mini3i is based on Android, suggesting Dell has retrenched to a hardware-only approach.

Instead, it seems Dell has chosen the path of least resistance rather than do something really differentiated. Fielding a cheap phone aimed at the vast, growing throng of Chinese consumers may well be the simplest way to get some scale. “They should be able to sell five million units with they’re eyes closed,” says former Motorola CEO Ed Zander, Garrigues’ former boss. But it’s hard to see how it will bring in the profits or improved brand position the company will likely need to get out of its funk of recent years.

Disclosure: stockOzone does not own any of the stocks discussed here.

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