Dell Tests Player to Renew iPod BattleMusic Device Is Key To Broader Strategy
Dell Inc. failed once to move into Apple Inc.'s digital-music turf. Now, it is plotting another foray.
In recent months, Dell has been testing a digital music player that could go on sale as early as September, said several Dell officials. Launching the player -- along with an online download service and related software -- would be part of a strategy that Dell Chief Executive Michael Dell hopes will move the company into a broader range of consumer markets than it has served before.
Dell first entered the music market in 2003 with a line of MP3 players that let users buy music from a variety of Web sites. But sales were disappointing. When Dell stopped making music players in 2006, its U.S. market share remained below 3%, estimated analyst Rick Doherty of Envisioneering Group, who follows the MP3 player market.
This time, if the company goes ahead with the music player, the strategy is different, said Michael Tatelman, Dell's vice president of consumer sales. Instead of simply selling a piece of hardware tied to someone else's music service, as it did in 2003, Dell is working on software for a range of portable PCs that will let users download and organize music and movies from various online sources.
The music player Dell has been testing -- the product's name couldn't be learned -- features a small navigation screen and basic button controls to scroll through music play lists. It would connect to online music services via a Wi-Fi Internet connection, and Dell executives said they would likely price the model currently being tested at less than $100.
The executives said the device has gotten a favorable reception from testers. Software would connect the device to an online subscription service that Dell expects to launch later this year. Through licensing agreements with online music providers, Dell's new service will let consumers download songs and move them between devices like PCs and cellphones.
While the device Dell is testing is focused on playing music, Dell's new service also would allow movies to be downloaded and displayed on PCs, for example. Pricing for the new service hasn't been determined.
Mr. Tatelman declined to detail how Dell expects the strategy to generate profit.
Rob Enderle, an industry analyst whom Dell hired to consult on the new entertainment strategy, said he is still discussing with Dell whether profits would come mainly from the subscription service or from devices tied to it. Mr. Tatelman said he will decide "in a few weeks" how to proceed with the music player, and that he may decide not to sell it at all. Other people familiar with the matter said they expect the product to be on the market by fall.
Dell would face stiff odds. Its new foray would put it into an Apple-led market that has defied assaults. Companies like Microsoft Corp. and Sony Corp. have tried -- and failed -- to make a dent in the market dominated by Apple's iPod players and iTunes store. Apple had 71% of the U.S. MP3 player market in the first quarter of 2008, according to industry analyst NPD Group. Apple's closest rival was SanDisk Corp., with 11%. Microsoft, which introduced its Zune music player in 2006, had just 4% of the market.
And Dell's track record isn't strong in expanding into other markets beyond PCs. In 2003, it started selling Dell-branded televisions; it abandoned its big-screen TV business last year after disappointing sales. Dell last year also discontinued its hand-held mobile device, called the Axim, which was introduced in 2002; again, sales were disappointing.
Mr. Tatelman said past efforts tried to make money by selling devices cheaper than competitors. The new entertainment strategy, he said, is different. Dell isn't trying to compete head-on with Apple's iPod, he said.
"This isn't about a new MP3 player," he said. Now, rather than simply trying to sell cheaper hardware than competitors, Dell is trying to integrate its products with software and services.
Dell has been working on a new consumer strategy since early last year, when Mr. Dell returned as CEO after a three-year hiatus. During that time, Dell lost PC market share as industry growth shifted away from Dell's base of commercial sales and toward consumer purchases of notebook PCs. To boost sales in that market, Dell last year started selling computers in retail stores, and has been trying to make its products more appealing to consumers by improving their external design and making them more entertainment-focused.
The new plan could strengthen Dell's consumer brand, said Mr. Enderle, the consultant to Dell. But it "carries a lot of risk, because one, this is an area where Dell didn't do well in the past; and two, there's a lot of companies out there that aren't doing well in it," said Mr. Enderle. To succeed, he said, Dell will have to invest in something it isn't accustomed to paying for: "an Apple level of marketing."
To that end, Dell is tapping ex-Apple expertise to make its foray. Its device is based on software developed at Zing, a company Dell acquired last year and which is headed by an Apple veteran. Mr. Tatelman said Zing software can be used to retrieve and organize online music, movies and photos, and will come pre-installed on a series of new Dell notebook computers and other devices. The Zing service will let users access their content from locations other than their own computer.
Zing, he said, will be used as a basis for an entire line of new consumer PCs and other products. That lineup, Mr. Tatelman said, will give customers access to whatever source of music or movie content they want, "rather than being dictated by a device and a single service."
The hope among Dell executives is that by integrating their PCs with entertainment software -- and streamlining the external design of their computers -- they will attract the type of consumer who would typically buy an Apple computer, but might be put off by restrictions that often apply to sharing music purchased from Apple the iTunes store.
Whereas Apple sells music itself, Dell is aiming to provide products that offer easier access to a variety of sources. Mr. Tatelman said Dell's Web site will factor into the strategy. Earlier this month, the company set up a feature called "Best of Web" that links to music services Pandora Media Inc. and Rhapsody, which is jointly owned by RealNetworks Inc. and Viacom Inc.'s MTV. Dell plans to sign licensing deals with online music services so that Zing subscribers can access their content, said two Dell executives.
Mr. Doherty, the industry analyst, said Dell's strategy may work because consumers are looking for ways to organize music from disparate sources in a way that Apple's digital-music strategy doesn't always allow. There's room for "incredible growth," he said, if companies can develop "something that makes the finding and sharing of music easier."
By: Justin Scheck
Wall Street Journal; July 30, 2008
