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JANUARY 31, 2005
By Nicholas G. Carr Dell: Beware the Beige-Box Blahs The PC maker shouldn't dismiss Apple's design-driven success. Markets historically evolve past commoditization to value style and special features
The tech business has a lot of trash talkers, but Dell (DELL ) CEO Kevin Rollins isn't one of them. Reserved and circumspect, he chooses his words carefully. So it was quite a surprise to hear him launch a verbal attack against rival Apple Computer (AAPL ) in a recent interview. Rollins dismissed Apple's mega-selling iPod as a "fad," calling it a "one-product wonder," and he pooh-poohed the eye-catching Mac mini as inconsequential. Rollins' comments are more than uncharacteristic. They're troubling -- and not just for their snippiness. They raise real questions about how well Dell understands the home market. SEEKING PIZZAZZ IN CARS. Up to now, Dell has been able to use pretty much the same strategy in selling computers to consumers as to business buyers: Offer functional, standard machines at cutthroat prices. Focus relentlessly on cutting supply-chain costs. Don't worry about product design. It's the classic Model T strategy. Like Dell with PCs, Ford Motor (F ) came to dominate the car market a century ago by turning the automobile into a cheap, mass-market product. Other manufacturers couldn't compete with Ford's extraordinarily efficient operations. By the early '20s, sales of Ford's drab but well-built Model T surpassed those of all other U.S. auto makers combined. Then the market changed. As consumers began to take cars' basic functions for granted, they started seeking a little pizzazz in their vehicles. An unadorned black roadster was no longer enough -- everyone suddenly wanted a stylish set of wheels. Niches proliferated. Fashion mattered. "MASS CLASS." General Motors (GM ) President Alfred P. Sloan saw the change coming. Popular consumer products, he understood, tend to evolve through three phases. They start out as luxury goods, expensive to produce and pitched to a small, elite market. Then, as maturing technologies and economies of scale drive down manufacturing costs, they become mass-market commodities. Finally, once they're established as affordable necessities, consumers start looking beyond the price tag for distinctive designs and features. Form begins to trump function. While Ford continued to churn out one-size-fits-all Model Ts, GM introduced a string of attention-grabbing Chevrolet models with smart new features. It also began tweaking its models every year, following the lead of clothes designers. By 1926, Chevrolet was stealing market share from Ford. By 1927, Chevys were actually outselling Model Ts. The market had gone, to use Sloan's terms, from "mass" to "mass class." BOOMING NICHES. A similar shift is looming in the home computer market. Now that basic computing functions are mature and well-established, consumers can be expected to start demanding a higher fashion quotient in their digital devices -- just as they do for other commonplace appliances like refrigerators, TVs, coffee makers, and speakers. Buying just another colorless box will become steadily less appealing. The market is already showing early signs of such a transformation. After years of erosion, Apple's market share is beginning to grow again, thanks to distinctive products like the iMac, iBook, and, yes, Mac mini. Some other manufacturers are finding success with PCs targeted to market niches. Alienware, for instance, has become one of the country's fastest-growing private concerns by selling tricked-out, high-performance machines to hard-core gamers. Niveus Media is winning raves for its silent, fanless computers designed to be hooked in to home-theater systems. As computers keep moving from home offices into living rooms, the demand for sleek, striking designs will only grow. START SOME FADS. Ford was slow to respond to the rise of the mass-class market for cars. Finally, however, it took action. On May 25, 1927, Ford announced it was discontinuing the Model T and would close down its main factory in order to revamp it for a new line of more attractive models. But the carmaker's glory days were over. It would never again come close to dominating the market the way it had just a few years before. Ford's fall stands as a cautionary tale for all companies that have thrived by riding the commoditization wave of a new consumer product. If Dell wants to continue to rule in the home as well as the workplace, it may need to class up its act. Rather than dismissing fads, Rollins should try starting a few.  Nicholas G. Carr is the author of Does IT Matter? Information Technology and the Corrosion of Competitive Advantage
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