Dell’s MP3 Player Move: How to Beat Apple

Last week the Wall Street Journal (WSJ) reported that Dell was again looking at the MP3 business and that I was involved in the effort. I’ve been fascinated with the success of the iPod for some time now and the fact that even though it is very clear how Apple took the market, there has yet to emerge a truly serious competitor to Apple’s leadership. This is primarily because no one wanted to match Apple on all aspects of their program initially, and now that Apple is dominant, matching alone won’t do it anyway.

On the other hand, just like Apple moved around the companies who dominated the MP3 player market before Apple entered, so too (in theory) could another firm. But, it will be harder this time because Apple has already captured many of the likely early adopters with either the iPod or iPhone product lines (you can check out our Apple iPhone 3G review).

The first lesson is that the way to beat Apple is to actually not focus on Apple at all, or more accurately, not focus on where they are but where they are not. The second lesson is to look where the market is going and get there first (which is what Apple did). Has kind of a Zen edge to it doesn’t it?

Why Others Failed

The reason why Apple has yet to face a formidable competitor is because no other company, including Microsoft and Dell so far, was willing to match them on the field of the retail battle. Apple’s iPod has 4 critical parts: It leads with compelling hardware, backed up by an integrated easy-to-use service, which in turn is fed by the majority of content owners, and the entire thing is wrapped with both an effective and well funded seeding oriented marketing program.

Each of the competitors has missed on at least one (and most often several) of these elements with the most common being marketing. Apple clearly outspends and out executes in primary demand generation marketing virtually every competitor they move against. I’m fascinated by the number of companies, after seeing Apple’s results, which simply don’t get that there is a connection between demand generation marketing and sales.

The most embarrassing was HP who actually beat Apple to market by three years, got tricked into licensing the iPod, and was forced to exit a market they were well positioned initially to dominate. Apple is very formidable as a competitor, but not bulletproof.

The Zen of Competing with Apple

Apple is about control. They often remind me of the opening for Outer Limits:

“There is nothing wrong with your television. Do not attempt to adjust the picture. We are now controlling the transmission. We control the horizontal and the vertical. We can deluge you with a thousand channels or expand one single image to crystal clarity and beyond. We can shape your vision to anything our imagination can conceive. For the next hour we will control all that you see and hear. You are about to experience the awe and mystery which reaches from the deepest inner mind to the outer limits.”

Can’t you just picture Steve Jobs saying this replacing “outer limits” with “iPod”?

Speaking for myself, there are a lot of times when I would really like it if folks didn’t control what I saw-and-heard and allowed me the freedom to discover new stuff. All Apple wants is for me to buy new iPods every year or so and they really don’t do that much to help me discover new music. Given most people refresh their iPods less than twice a year, they clearly don’t do enough to keep what I’m listening to fresh. Or, put another way, I don’t really need Steve Jobs to be my Big Brother. I mean, heck, they don’t even put a radio in the iPod, are they are so concerned I’ll do something that doesn’t go through them.

That means the way to move against Apple may be similar to how Open Source moved against Microsoft: By providing choices. There are a lot of services like Rhapsody, Napster, Pandora, and my personal favorite, Slacker which provide a better overall music experience today for a lot of people, but these services are difficult to get onto players (particularly if you want more than one). The only company that is in market that seems to do a good job of allowing you to use one or several of these services is Sonos but they don’t have a personal player yet.

Sonos does showcase a bit of the future which is connecting to the “cloud” and not to a PC so that your media is always available to you and both safe and secure. Cloud Computing is where Google, Microsoft, IBM, Dell, HP, and others are focused and it represents the next big thing in terms of technology trends. Apple’s crippled MobileMe offering indicates that the company is having significant problems with Cloud Computing suggesting a weakness here.

So where Apple isn’t at right now is choice and that’s where the market is going is to the cloud for services.

So I think the way around Apple is through choice, choice of services, focusing on non-DRM music, and a cool player that is small, sexy, and inexpensive. But if they did all of that would they succeed? Depends on how you measure success.

Beating Zune

I’m reminded of the story of the two guys being chased by the bear. One stops to put on his running shoes and his buddy asks why he is doing that because he’ll never outrun the bear. His friend says, “I don’t have to outrun the bear I just have to outrun you”. To be viable initially, Dell doesn’t have to beat Apple, they have to beat Zune. In this case, Zune is the friend without the running shoes.

Zune actually had a decent launch budget and the second generation players were vastly improved, but they lack a choice of services and, I think you could argue, the players, while more capable, aren’t as attractive as they need to be. They have, however, evidently moved into the number two spot. We should stop and take a moment to ponder the passing of Zune’s biggest fan; he just bought an iPod (typically not a good sign).

Dell envisions their service to be more like a mall than a store in that you’ll be able to move between providers and pick either, or the few, that best meet your needs. Since DRM is clearly out of favor and there are now a number of providers who provide DRM free tunes (they would be ideal candidates for the this virtual mall). At the core of the solution is Zing a company Dell acquired some time ago that will form a foundation for the music mall.

In reality the first test will be if people that see the Dell solution are intrigued enough to make the company a player again. You’ll see Dells hand in a few weeks; let me know if you find it as intriguing as I do.

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