4 ways consumerization threatens Dell and HP

As with practically every other vendor on the planet, Dell and Hewlett-Packard execs have been waving their arms to get press attention for their views on consumerization — the trend that’s turning IT inside-out and becoming the latest buzzword for vendors to attach to whatever they’re selling. You’d think the two companies moving the bulk of PCs in the world would be in the catbird seat when it came to consumerization. After all, consumer devices are what they do.

In fact, Dell and HP are worried, for good reason: Consumerization’s trajectory is not going toward their sweet spots. It’s true that consumer devices are the vehicle for much of the consumerization trend, but these companies aren’t making the devices people are opting for. That threatens not only their consumer-facing business but the IT business where they actually make their money.

There are four related issues keeping Dell and HP execs up at night, and what they’re struggling with concerns both IT and users. I spoke recently with Mike Rosenstein, who runs Dell’s business group; he was quite candid (and optimistic) about what Dell was facing. HP has also shared some of its thoughts, but in a highly scripted way that didn’t get to the core issues. Here’s my take on what they’re up against.

1. Dell and HP are not in the mobile game, where the main action is
The never-ending frenzy in the blogosphere — and users in general — are all about mobile devices. They line up for the latest iPhone and iPad models and sometimes for competing devices. Dell and HP are worse than no-shows in that business; both failed spectacularly last year in their mobile efforts. HP touted WebOS as the future of its entire computing lineup, shipped a mediocre tablet six months later, and killed the WebOS project six weeks later. Starting in mid-2010, Dell shipped several woefully bad Android-based Streak mini-tablets, becoming the poster child of an old-guard company that doesn’t get it.

Dell hasn’t formally given up on Android, but it has, in essence, ended the Streak effort. It sells two smartphones under the venue name: one running Android 2.2 and the other running Windows Phone. I doubt anyone knew that. HP is completely out of the game; its website’s few links to smartphone products go to deleted pages for ancient products such as the iPaq, which died years ago.

Neither company shows an indication of engaging in the smartphone market, ceding that market and brand awareness to the Apple, Samsung, and the other mobile leaders. As for tablets, they’re banking on the forthcoming Windows 8, as I describe later.

2. PC sales are shifting to individuals’ choice — threatening lucrative sales through IT
Most of us consider Dell and HP to be mainly about consumer PCs (and printers, in HP’s case). But both have been moving away from consumer PC sales, due to the low margins for the $600 units dominating that consumer market. Sure, some people pay more for PCs, but most of them buy Macs. Dell and HP couldn’t enter the Mac market if they wanted to.

Instead, they’ve focused increasingly on the business PC market, where they can sell fleets of pricier PCs through IT. Not only is it easier to sell to fewer customers, the profit margins and order volumes are very attractive. Plus, it gives Dell and HP an entrée to offer the highly profitable consulting services both have been bulking up on in the last decade. For the two companies, the PC’s role is increasingly as a loss leader or entry point for selling other items.

The consumerization phenomenon works against that business-oriented strategy. Let’s face it: The boring slate-gray slabs that both companies sell to IT are hardly the kinds of computers that excite users. That didn’t matter when IT made the call. When Dell, HP, Sony, Lenovo, and others have trotted out racecar-type PCs in the past, few captured users’ imaginations — and IT considered them fatuous window dressing, pressing the PC makers for models that wouldn’t change so that IT could streamline its support efforts.

The BYOD phenomenon has taken IT out of the device-selection business, and it’s going to happen to PCs, too. I regularly hear CIOs and other execs muse about having employees bring or choose their own computers for the workplace. One reason is business execs’ infatuation with Apple’s MacBook Air, which gets imposed on IT despite protestations around support and management. Another is the success of BYOD, where several years of dire warnings about security risks have not been realized, creating a “boy who cried wolf” reaction. If it works for smartphones and tablets, why not for PCs, too? And if users choose their own PCs, they can provide their own support, as they do for iPhones and Androids.

In that environment, users won’t be choosing the same old slate-gray box. Dell and HP won’t be able to sell thousands of PCs to one IT department, but instead will be competing with Apple and the rest in a battle for market share. That plan to use the IT sales relationship to sell lucrative consulting services gets a lot harder to pull off.

3. Their PC future is staked to Windows 8, where differentiation could be hard
People don’t get that excited about “regular” PCs. A faster processor, hundreds of an inch less in thickness, an extra port, and a gussied-up chassis — they’re meaningless to users. Instead, they want relevant innovation and real style, which is why only Apple’s Macs are gaining market share, and everyone else is losing.

Intel’s Ultrabook push — encouraging PC makers to adopt MacBook Air-like designs and battery life — was meant to help the industry get out of the gray-box coffin. So far, it seems to be failing, perhaps because the first generation of Ultrabooks were both pricey and based on old technology. The second-generation Ultrabooks unveiled at this year’s Consumer Electronics Show drew mainly yawns — OK, they now look like MacBook Airs and seem to have better battery life and faster startup. So what? The case may have changed, but they all look basically alike, so one cookie cutter has been replaced for another. The pretty Dell XPS 13, for example, is hard to distinguish from, say, Vizio’s Air-like clone. HP did show a strikingly different design, the Envy 14 Spectre, but prerelease reviews have been mixed.

As a possible differentiator, Dell continues to push the use of Trusted Platform Module (TPM) chips in its business-class laptops. TPM has been around for years with little adoption, but whatever its technical merits, it’s simply not used in most PCs and in any mobile devices. At best, its utility is for laptops that IT provisions employees with exceptional security needs — the minority of workers who can’t join the consumerization party.

Dell and HP are banking more on Windows 8 than anything. That OS has versions that will work on desktop PCs, laptops, and tablets — plus perhaps “convertible” laptop/tablet hybrids. I’ve detailed the Windows 8 strategy (and how it compares to Apple’s OS X/iOS/iCloud strategy) before, but suffice to say it doesn’t leave a lot of room for differentiation among vendors. We’ll see regular PCs, touchscreen PCs, laptops, touchscreen laptops, and perhaps some tablets that run what is essentially Windows 7 plus the widget-oriented Metro UI, with the idea that the more mobile you are, the more likely you are to use the touch-oriented Metro UI than the Windows 7 UI and its traditional apps. There’ll also be Metro-only tablets and perhaps laptops running on ARM processors, for a more iPad-like user context.

Windows 8 may give Dell and HP the opportunity to stand out. Perhaps one of these companies will become successful in a new form factor, such as convertibles, and be able to become the MacBook Air of that product class. As far as I can tell, that’s the main hope — and that Windows 8 will lift all PC sales, which have been languishing as iPad sales have skyrocketed.

It’s possible that HP and Dell will take the Windows 8 opportunity to come up with meaningful innovation, using the breakpoint Windows 8 brings to the PC market as the reason to, er, think different. But I’m not counting on it. Neither company has produced meaningful PC innovation for a good decade or more. They’ve both reduced their PC R&D budgets drastically over the years, and they let the Taiwanese companies who actually design and build their PCs do the real work, with advice from Intel and Microsoft. The Taiwanese companies are all about manufacturing scale, not about technology differentiation and innovation. Dell and HP would have to make significant, sustained investments in fundamental PC design, not just case design — which is exactly the opposite of what they’ve been doing.

Worse, Windows 8 is likely to be loathed by Dell’s and HP’s target IT customers. Its new Metro UI will require massive user retraining. There’s really nothing new for IT in the Windows 7 legacy environment that runs underneath Metro, so why would IT — which is only now beginning to adopt Windows 7 — invest in the new OS? The touch UI in the Windows 7 portion is unusable (in Windows 8, Microsoft has not fixed the fundamental issues that have long plagued Windows’s touch UI), but users will demand touch-capable laptops and monitors nonetheless, adding more unnecessary cost from IT’s point of view. And ARM-based Windows 8 tablets can’t connect to Windows domains for administration, forking Windows management and thus making IT’s life that much harder. Individual users may like the simplicity of Metro, but they’re no longer who Dell and HP are trying to reach.

4. Their consulting businesses suddenly look too tactical
Remember, for both Dell and HP, the consumer PC has become a low-margin commodity designed to maintain brand awareness and keep cash flow moving. Even their business PC efforts are more aimed at getting the opportunity to pitch consulting services to IT than about selling PCs per se.

Consumerization should introduce a new opportunity here for both companies, as IT wrestles with managing a heterogeneous technology portfolio. Both Dell and HP are making that pitch, but so are consultancies considered much more strategic, such as Accenture, Avanade, Deloitte, IBM, PwC, and Unisys. IT may go to Dell or HP for help on virtual desktop deployments or backup strategies, but consumerization consulting is ultimately about risk assessment, policy development, process design, and federated management — very strategic issues that a tactical consultancy such as HP or Dell just doesn’t have the cred for, whereas those other entrenched consultancies do.

Dell and HP are more likely to pick off smaller businesses in such consulting, where the complexity is low, the strategy more boilerplate — and the client focus more on the tool set. (It would make sense for Dell to expand its Kace systems-management tool to cover mobile devices, as Symantec has done with Altiris.) Both companies are largely in small-business consulting anyhow, but the consumerization shift will make it that much harder to expand into larger, more lucrative, more strategy-seeking clients.

The unintended consequences of a move away from consumers
The irony in the dilemma faced by Dell and HP is that the consumerization phenomenon is occurring just after they began moving away from a consumer focus (in their profit strategy, that is). They’ve targeted IT buyers just as those buyers are losing or releasing at least some of the purchasing decisions over the kinds of user products HP and Dell sell.

Both Dell and HP have the advantage of being known to both users and IT, and they’re still liked. Dell particularly in its early years was a pioneer in build-your-own PCs, a capability that it downplayed as PCs got commoditized but could actually factor into the bring/choose-your-own consumerization trend.

And Apple has proven that “consumer” needn’t mean “cheap,” either in price or quality. Some of the reasons for abandoning the consumer market may not have been so valid. However, Apple offers more value for those extra dollars, whereas most PC makers have tried (and failed) to copy the Apple gloss but not its quality and innovation. Of course customers haven’t been willing to pay them a premium!

Dell’s Rosenstein told me the company wants to deliver PCs that appeal to IT around the needs, such as manageability and security, not considered by users and to deliver PCs that users lust for and will choose in those cases when IT doesn’t dictate the decision. He’s right — an “and” strategy is essential in a consumerization context. On the other hand, Dell founder and CEO Michael Dell proclaimed this week that Dell is no longer a PC company but a business services and IT provider. 

Dell and HP have a shot, but only if they rethink their strategies — just as their IT customers are having to do. So far, their rethinking has been to go corporate, into servers and consulting, and away from the devices people use. That leaves the future of user tech in the hands of Apple, Samsung, and perhaps some other names we’re not yet familiar with.