Dell Misfires on PDA Strategy

Dells entry into the PDA space with sub-$200 and sub-$300 devices scared the heck out of competitors. Then they actually saw the devices and went back to their normal lives. Ho-hum was the collective reaction.

One has to wonder what Dell is doing in the space. The company is clearly trying to undercut rivals on price. In general, however, the Dell strategy misses the mark. First, Dell appears to be losing money on the devices. According to sources at a competitor that evaluated the same design that Dell chose with its low-priced Axim, the hardware alone costs $175 per unit. Add $15 for the supporting warranty, $25 more to Microsoft for the operating system, and you have a $215 device. And, thats the least it will cost—marketing and sales costs will jack up Dells internal price even more.

Dell is selling the Axim X5 for $199 after a $50 rebate. Dell may also be losing money on the Advanced model of the X5, which sells for $299, or significantly less than the competition for similar functionality. For what, though? Consumers will be better served by Palm OS-based devices, which are easier to operate and less expensive.

Switch to the enterprise, and Dell is outclassed by the competition. (See Jason Brooks review of one such device, Palms Tungsten T.) There is a wide assortment of Palm OS- and Pocket PC-based devices, and each vendor has at least some differentiation between its consumer and its enterprise devices. Dell, however, sells the same units to consumers and enterprises.

This shows that Dell believes the PDA market has stabilized—or it will, once Dell enters it. Dell is counting on enterprises requiring capable devices at a 30 percent discount over similarly equipped models. Dell also believes these enterprises do not require expanded services and will buy the devices direct and leave it up to individuals for support.

Im not that committed to the stable-market theory yet because theres no clear indication of what consumers will support. Generally, end users want small size, which the Dell unit doesnt have, and enterprises want networking capabilities and service and support, which Dell may or may not be able to offer.

Dell is one of the best-run companies in the world. Why would it risk getting into the PDA space so early? Write to me at john_taschek@ziffdavis.com.