Dell hits ctrl-alt-delete on consumer PCs

How do you reinvent a reinvention?

It might look something like what Dell is doing right now. The company's consumer PC business has, despite a concerted effort to reverse its sagging fortunes, remained stagnant over the past three years. An onslaught of expensive designer laptops and cheap, colorful mini notebooks, and high-profile outside hires can't automatically make a successful consumer PC business, it turns out.

Now, for the second time in three years, Dell's consumer business is undergoing another extreme makeover. The folks in Round Rock have in a few short months, quietly hacked away the fat from its bloated consumer notebook model lineup, undertaken a new worldwide marketing campaign, and made some pretty dramatic personnel changes. On Wednesday, the company revealed that Ron Garriques, who was hired from Motorola in 2007 to lead a new consumer revolution for Dell, will leave the company in January, effectively capping what turned out to be a relatively short-lived experiment.

Though Dell was hit particularly hard by the economic downturn, things are finally starting to improve, but it's the commercial sector that is leading the way. Storage, servers, and computers for large companies and government agencies are the reason for Dell's good showing during its fiscal third-quarter earnings call yesterday where it announced it had doubled its profits in the last year.

Enterprise is "at the heart of where we're driving the strategy," CFO Brian Gladden told reporters yesterday.

Why? Because consumer, try as they might, is still not where Dell's expertise is. Sales of notebooks and desktops to regular people accounts for only one-fifth of Dell's business, and while the enterprise, small/medium business, and public sector units' revenues were up more than 20 percent each for the third quarter. Consumer revenue inched up a mere 4 percent.

Now, Dell is going back to the drawing board with a more simplified product lineup and a narrower view of its target audience. A wise choice, observers of the company say.

"What this says is, Dell is very good at some things and they're still not as good as they need to be in doing other things," said IDC PC industry analyst Richard Shim. "Like focusing on the consumer market."

After getting leapfrogged in PCs sales by the surging Hewlett-Packard in 2007, former No. 1 PC maker in the world Dell decided to change its strategy about selling to consumers. It began splashing color, patterns, even textures across its laptops to appeal the personalization craze that gripped the electronics industry starting half a decade ago, all in an attempt to regain its mojo in the PC business.

It started to try new things previously unheard of at the world's best known purveyor of boring gray workstations--convertible laptops, mini notebooks, smartphones, and more recently, a series of touch-screen tablets. Yet there's still little buzz about any Dell products. The touch-screen Streak drew some interest, but its smartphones received lackluster reviews.

Now a major rebranding effort is under way, which notably does not include some of the boldest moves Dell made in the past three years: ditching the design-conscious lines Adamo and Studio and focusing on a simplified, budget-friendly lineup--its most expensive laptop now starts around $700.

Dell is trying to change how people think about Dell. Like any brand, it wants to stand out from the pack, in this case, from the Acers, Toshibas, HPs, and Sonys--all featuring the same Windows software on the shelf at Best Buy or Walmart. Part of that is simplifying and focusing its message: It wants to deemphasize speeds and feeds and price and get people to identify better with its brand by having something for everyone. Inspiron is for the budget conscious, XPS is for media and entertainment usage, and Alienware is for gamers.

And though it's not something the company will admit, the biggest change is likely in how Dell sees itself.

Chiefly, it's stopped chasing Apple. In a recent meeting with Dell Chief Marketing Officer Paul Henri Ferrand, he insinuated that Dell wasn't trying to compete directly with the Mac maker for consumers. "In the PC/Windows environment, we want to be the most loved brand for consumers," Ferrand said. Put another way, he said, their appeal to consumers is, "If you're going to choose a PC, Dell is better than everyone else."

That's a big change from the Adamo years. For those that don't remember, the Adamo was a sleek, fashion-conscious 13-inch notebook very much in the same category as the original MacBook Air, right up to the price tag: $1,999 to start. Super thin and made of pricey materials, it was a symbolic move for where Dell said it was heading. When it was released in March 2009, Dell splashed ads for it across the pages of high-fashion magazines like Vogue and said that this was "just the beginning" of an all new design-conscious Dell.

But its inspiration was obvious: everything from the design to the packaging to the marketing efforts were such obvious homages to Cupertino's approach to personal computers. The Adamo was discontinued earlier this year. The Studio line, which was also designer friendly, was also axed recently. One of the public faces of those efforts, SVP of Consumer Alex Gruzen, quietly left the company in June.

The Adamo, and to a lesser extent Studio, was symbolic it turns out, in more ways than one. While it initially telegraphed Dell's hopes for a reinvention of its image for consumers, its axing revealed just how difficult that was for Dell. Luckily, it wasn't all for naught. Before 2007, Dell hadn't ever used a color other than black or gray in its PCs. Now it's not shy about colors, patterns, or bolder form factors--like the upcoming Inspiron Duo, a hybrid mini notebook and touch-screen computer that's getting some positive early reviews.

Stating the obvious, the new consumer effort is a work in progress, President of Consumer and Small and Medium Business Steve Felice said more than once on the earnings call yesterday. The company is spinning Garriques' departure into a positive, saying that his former unit, Communications, which helped launch several Dell smartphones and the first of several touchscreen tablets like the Streak, will be responsible for supporting the launch of mobile products in all sectors, not just for consumers.

"We're being more bullish now," said Felice. "We see tablets have growing potential in our consumer business and our commercial business, and this is aimed at getting this to scale in a faster fashion than we initially envisioned."

The Streak is, frankly, kind of a weird outlier in the touch-screen tablet world. At 5 inches, is it a smartphone? Is it a tablet? It's not really clear. But there are larger versions of it in the works, and that's an area that will blow up next year if the number of other PC makers rushing to this same segment are any indication.

But has Dell really learned? Trying to copy what others were doing in consumer notebooks didn't work out so well, so why would copying what others are doing in tablets be a good choice now?

If anything, the company should be focusing on standing out. Dell is actually doing some interesting things with software, IDC's Shim pointed out. The Stage user interface, which is a touch-screen-friendly overlay on top of Windows on the all-in-one Inspiron desktop and the hybrid Duo, is an interesting beginning to a way Dell could create an experience unique to Dell across several of its product lines.

"It could be a springboard opportunity with the resurgence of commercial (sales) to propel them to a better situation on the consumer side," said Shim. Which they shoudn't ignore, said Shim. "The commercial rebound is not going to last for multiple years."