Anatomy of a Resurgence: IDC's Daoud on HP's Leap-frog Over Dell

The depth of the perception problem can perhaps be best measured from the other end of the candle: Did HP gain market share because its PCs are truly that much better than Dell’s? Is the qualitative difference as obvious as the market share differential?

Daoud believes not. “At the end of the day, all PC vendors typically use standard components from a product perspective,” he remarked. Design differentiates PCs to such an extent now that machines from Alienware, Falcon Northwest, and VooDoo PC are perceived as radically different from even premium store-bought brands...when that perception is all in the looks department.

“The products essentially are the same from a technology standpoint,” he believes. “The differentiation happens in the way they go to market, in the way they approach the market, and in the way consumers perceive them. Perception is really based on your actions, it’s based on your publicity, your ability to market yourself.”

Here is where Dell being too small comes into the picture: Its brand is smaller in some of the wrong places than many realize. Dell may have a command on the direct market, but the Web is not the market as a whole. In department stores, in electronics stores, and in everyday life, the HP brand has a much bigger general presence.

“HP is present in pretty much any retail store in the US. It’s not only present on the desktop or laptop side, it’s present for its digital cameras, for its printers, for its other products, for its software. That perception is reinforced not only in retail but in other channels – the third-party resale market,” explained Daoud.

That helps on the consumer side. On the enterprise side, HP’s presence is felt in the channel - in the direct contacts that HP makes with its customer, not the other way around. Here is where Dell’s “direct model” looks more and more “indirect.” With a multi-faceted channel strategy like HP’s, Daoud said, a company makes direct, personal contact to compete for bids and for business.
This leaves Dell’s direct model as a storefront mainly for the consumer. Here too, it may actually be growing obsolete, for reasons never before explored and perhaps never before realized.

“In a market that is highly saturated, highly mature, you begin to get very demanding customers, very savvy customers. You begin to deal with customers whose needs are very much niche needs, or specific needs, [as] we move more toward personalization,” Daoud described.

He’s not talking about the need for bigger hard drives or for built-in WiMAX, but literally for smaller things like carrying cases, mother-of-pearl mouse covers, and blue, glowing system cases. (Guilty as charged on the final count.) In a market where platforms have become standardized, vendors have to distinguish and differentiate themselves in any way they can.

Suddenly, your sales model isn’t about how much memory or storage the customer is asking for, but who the customer is. “From a segmentation perspective, from the young student to the teenager to the professional, older man to the gender differences between male and female when it comes to simple things like laptop carrying bags...that makes a huge difference,” said Daoud.

“When you have a direct model that is based on volume sales – namely, millions of systems that typically look alike – then you see a different demand environment. In other words, the sort of systems that we’ve been accustomed to, the desktops and laptops that we’ve known in the past, may no longer exist the way we’ve seen them. You cannot supply the same design, the same box to such a complicated buyer ecosystem, and that’s where the mass direct model [falls short].

“I think that the technology in the box, in itself, as it stands today, even with new technology from Intel and AMD and others, is not enough,” continued Daoud. “What the industry needs [to do] – and a great deal of this falls on Microsoft’s shoulder, much more than Intel – is really look at the usage model, and not necessarily at the box itself. How do people view their PCs, why do they use them in such a way, and how do you extend or improve user experience by expanding into new utilities, into new experiences, things that can go from expanded mobility, expanded access, not only at home to your WiFi and your café but outside through wireless broadband, how do you go beyond that to include content, the way Apple has with the iPod? How do you get into downloadable movies, to sort of really paying attention to what the end user is looking for, and how do you make that a lot better?”

This is the issue that, in Daoud’s view, may be facing HP more than Dell at the moment, which is busy piecing itself back together. Dell created a direct sales model where the consumer directly interfaced with the supplier. Now it comes time for the supplier to interface directly with the buyer, in both the consumer and business segments. How HP responds to this challenge may determine whether it keeps its new-found lead - or whether it cedes that lead to, of all companies, Acer.