Dell Outsourcing Product Management to Its Customers

Dell has made a habit out of bucking the system with their unique business model. They have made a lot of money driving the cost out of servers, PC’s and laptops by cutting out the middlemen like CDW and selling direct. Most of Dell’s major innovations have been in operational improvements like supply chain management, packaging efficiency, and squeezing suppliers. This is part of the reason their performance has been suffering.

Dell recognizes that in order to effectively compete with lower cost commodity “beige boxes” from Asia and resurgent competitors, they need to enter new markets. In the last 24 months Dell has pushed into the consumer electronics space with flat panel LCD and plasma screen sales, digital cameras, projectors, and printer lines. In order to continue entering new markets, Dell will need exciting new products.

Fortunately as a Product Manager or someone interested in innovation, you are on the right side of the pendulum. Innovation is replacing operational efficiency as the top priority in most companies, especially with regards to technology.

Unfortunately Dell does not have a culture of innovation or R&D. In fact, they have publicly stated that they don’t want to spend on R&D and prefer to outsource that function to their suppliers. Dell never wants to be a groundbreaking company in a market. Dell prefers to be the 3rd or 4th player in a market and use their operational efficiency to crush the competition.

So how do you build in customer input when your innovations have traditionally been internally, not externally focused?

Dell appears to be applying their direct model to Product Management by outsourcing this function to their customers with Dell IdeaStorm.

On Friday Feb. 16th, Dell launched IdeaStorm. IdeaStorm is a Digg-like site where users can submit ideas and the community can vote the best ideas up or down. The idea is that through the power of the masses, the highest quality ideas will bubble to the top. As of the time of this post, they had logged approximately 2000 ideas and 150,000 votes.

Let’s look at the good and bad points of this model, starting with the good:

• More customer input > less customer input
• This is a great way to leverage Crowdsourcing
• Companies like iStockPhoto and InnoCentive have buit business models around variations of this idea.

Now some of the hurdles:

Wheat vs. Chaff - Thousands of ideas, pre-sorted by the collective intelligence of your users. Sounds great right? Maybe, but users don’t know what they really want most of the time. Users are fairly good at identifying holes in existing products, and incremental improvements, but few users can generate the vision to solve a latent problem that would lead to an entirely new product or line. Even if they could it would probably be voted down by the group, most of who wouldn’t understand it. Kraft and Whirlpool have both undertaken similar approaches and struggled with this problem.

The “Why didn’t you do that?” Problem - I applaud the openness and democratic nature of putting all these ideas out there for the World to see. But this creates another tough problem that Product Managers are already familiar with - when you discuss potential future products with your user base, and then choose not to go down that path for whatever reason, you end up with users who are confused and even upset that you didn’t take their suggestion. Luckily this is usually limited to the small groups your PM’s are talking with. For Dell, the bigger IdeaStorm grows, the more pressure to follow up on the top rated ideas…but what if the idea doesn’t make business sense?

Customer generated ideas aren’t necessarily good business - Customers love giving their opinions. I can’t tell you how many times I’ve been having a conversation with a customer about potential next generation products and get feedback from the user like “Feature C is something our technical users would use all the time,” “That product sounds really cool!”Then you ask the great double edged sword question: “So what do you think a Product that does X, Y, and Z would cost?” and get back either “Oh I would expect that to be FREE,” or, “I would expect to pay about what I’m paying today.” Customers will always lie sandbag on pricing because they don’t want to give you the upper hand on pricing.

This doesn’t just go for price, customers will ask for what benefits them, and it may not benefit your business. Check out the top 10 most popular ideas on IdeaStorm. As of the time of this post, 9 of the top 11 ideas had something to do with a no-software, linux, or other free/no-cost pre-install on Dell systems. Dell might get a few additional system sales from offering this options, but it’s generally pretty hard to monetize free.

Internet time moves too fast - Even for a company with the operational agility of Dell, the Internet is too fast. It’s very easy for me to imagine a scenario where Ubuntu linux is the distro of choice on IdeaStorm today, which starts Dell down a 3-6 month path of productizing around that OS. By that time it might be the hot new Slackware. Of course this problem isn’t limited to IdeaStorm. IdeaStorm will magnify the problem however, since when they are releasing software A just as software B is heating up, the community will trash them for not “choosing” software B since “it’s number one on our list.”

We try to blunt this problem by taking a proactive approach of defining the partners that we’re going to work with and widely publicizing that information, to help guide our users to choices we can support. That and supplementing user feedback with a strong understanding of the Market around us.

Ownership of Ideas - Halfway down the Terms and Conditions page on the IdeaStorm site they reveal that the price for your submitted ideas is capped at $1000. So if you have a really killer idea, know what you’re signing up for…

In the end, IdeaStorm could be a powerful tool for Dell. Customers generally want to help companies that they like design new products (68% of users express this desire according to BusinessWeek). Overall it is a Good Thing that Dell is trying to open new avenues of innovation. In order for Dell to succeed, they will need a massive reboot on their culture to become the innovation focused “Dell 2.0” Michael Dell envisions. That effort is going to take much longer, and much more investment than putting up another portal.

26 February 2007 | Product Management, Tactics, Theory | Comments