Analyst Opinion - I was watching the Olympics over the weekend and couldn’t help but cheer when the US swim team beat the French. Going in, the U.S. team was clearly overmatched – yes, they had a couple strong swimmers, but as a team they were underpowered. The French team, feeling deservedly confident, publically disparaged the U.S. team and indicated they would “smash” the U.S. team. Well, that isn’t what happened, now is it? In fact the victory likely wouldn’t have been anywhere near as sweet had the French been a bit more modest. In that sense, I couldn’t help but think of the initial reaction of the Apple faithful to the WSJ article on Dell’s new MP3 strategy. Apple’s FUD machine seemed to go overtime, particularly after it learned that I had been briefed and provided a few minutes of feedback on the product.
Wouldn’t it be sweet if Dell, the distant underdog in the MP3 space, actually came up with something compelling enough to sting Apple? Granted they are more likely to sting Microsoft (Zune) or SanDisk (Sensa), but what if they were able to go for the gold? If it weren’t for the fact that Apple itself has done this twice first with the second generation iPod and then with the first generation iPhone, you would say this was impossible. But it was kind of fun to watch Apple initially surprise the rest of the cell phone industry that clearly did not even see Apple coming.
Apple builds some wonderful products. But while the new iPhone still feels like a Beta offering to me, I can’t deny that the new Application Store is brilliant and that some of the games provided on the new phone should have both Nintendo and Sony very worried. If the rumored iPhone Nano is coming or a version of the iPhone that does not require the very expensive 3G data services that many can’t afford, I still think Apple could surprise the cellphone market even more than they already have. While I haven’t been a fan of the iPhone, I’m starting to warm to it and think it is at least possible that I will be using one by this time next year.
Apple has one of the highest NPS Scores in the market with 60 (Dell’s is 50) suggesting they lead in customer loyalty and they have locked in both automotive and accessory interfaces so they will be a real problem to displace. Adding to this problem is the large number of tracks folks have purchased which can’t be moved to another device (DRM does have its uses), which explains why Apple has been slow to adopt DRM free content broadly. Their customers are basically locked in.
But while they are focused on the phone, the MP3 market is found wanting. Their new Nano has hardly captured the hearts and imaginations like the first generation did (a new one is rumored to be coming) and the iPod touch feels like the poor sibling to the iPhone. They have been at war with some of the content providers like Universal and anecdotal information suggests there are a lot of people who either don’t use an iPod or have stopped using the one they have.
Apple’s control often seems extreme and they are already being challenged for Anti-Trust violations in several markets suggesting that they may be ordered to open up some of their interfaces much like Microsoft was. Strangely enough, that actually helped Microsoft, but I doubt, given the difference in the market, that such an action will help Apple.
Finally, there are a lot of folks that just haven’t warmed to the iPod and who might want something completely different.
I was involved in some early discussions on what Dell was planning to do, but the product isn’t entirely cooked yet. Basically, it was a short briefing after which I was asked what I thought. I thought it had potential, because it seemed to provide things that the iPod didn’t - a choice of both DRM free purchase services and subscription services that allowed the buyer some flexibility in terms of the experience they wanted.
This would be the first truly cloud based music offering and given that Apple is currently struggling with their own MobleMe based product and that Dell has been aggressively going after Cloud Computing for some time, this could be attractive to people who currently don’t like iTunes. Provided that Dell’s service will be compelling.
Granted, initially, I wouldn’t expect any generation one product to pull any loyal iTunes users. This means Zune, SanDisk, and Samsung are more likely to be hit and even here not hard until Dell fine tunes their service and expands their initial product line beyond one product.
So, while there seems to be a lot of talk about Dell creating an “iPod Killer”, it probably will be a lot of things but not that, at least not initially. Think of it as an experiment in what Apple is missing. It may fail, but Dell certainly has a right to try.
If you look at some of the coverage from some folks, you would think that Apple is moving, much like they did with HP, to keep Dell from entering the market. Most of this stuff isn’t even accurate. And how can it be? The thing isn’t even cooked yet.
What if Dell wins?
It is fun to bet on the underdog and watching the Olympic swim team kick some French buttusky was more than a little fun. Apple has been so incredibly smug about their dominance of music and their success with the iPod that they appear to think they can do anything. Beating up on any company that currently has zero market share is both easy and feels more like something a bully would do.
When HP tried to bring what might have turned out to be a superior MP3 player to market, Steve Jobs tricked them into licensing the iPod and then reneged on everything he had led them believe they could actually do with it. It was brilliantly done, but this does imply Apple would be willing to do some very aggressive things to keep Dell from entering the market.
I think Dell should be given the benefit of the doubt. I’m not advocating you buy the product, because even I haven’t seen the final version yet (and I believe it doesn’t yet exist). When it does show up, it will be a “generation one” offering suggesting only early adopters (who know what that means) should even consider it. But, if it looks promising, maybe a little bit of nurturing if only to keep Apple honest wouldn’t be a bad thing. And, if Dell did step up and was able to upset Apple’s extreme market dominance, well having someone else get the gold for once might be fun as well.
Until then, thanks to the U.S. Olympic swim team, I’ve got a little extra spring in my step, keep that gold coming!
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.