Monday, May 24, 2004

HP vs. Dell: How It's Done 

A couple days ago I saw this article in the New York Times about HP and Dell competing in the printer business. This reminded me immediately of my previous post about HP and Dell competing in the PC market. This article is the exact opposite, as Dell is trying to gain traction on HP's home turf: printers.

My first thought was basically, well, at least Dell knows what they're doing. I think they're approaching from exactly the right angle: what are we good at, and how can we use that to make printers that are attractive to [certain] people? Dell, as everyone knows, is fantastic at logistics and operations management, and they can use that to lower costs and squeeze out better profits. They did it for PCs, and now they're trying to figure out how to apply their expertise to do it with printers. There's no reason, at this point, to think that they wouldn't be able to make interesting advances in this direction.

I don't want to ding HP too hard here, because they're the incumbent in this market, and they're basically gonna get taken down a few notches. (Third week of Econ 1: if there's profits in your industry, and free entry to the market, firms will enter to get a slice of it). So they'll say anything to make Dell's offerings seem less attractive, and right now, that message is "This is rocket science, and Dell's printers are gonna be crap." That's all they really can do. That is probably true, but as I pointed out in my previous post, there's no reason to think that there isn't room for that in the market.

The really idiotic thing for Dell to do, analogous to what HP is doing in PCs, is to declare that they're going to start spending billions of dollars on R&D in printing technology to create better printers than HP. That's not what they're good at, and it would be a huge waste of their money. By providing cheaper printers of reasonable quality, they can provide an equally valuable product, if only to a different group of people than those who would be attracted to HP's very quality offerings.

The New York Times article frames this as a battle of strategies, and the Slashdot posting that originally pointed me to this seemed to take this same standpoint. (Actually, they changed it to "Innovators vs. Copiers," but what do you expect from them). They both fail to understand that this is not a contest where one idea will win. These are different strategies for how to operate in a market. The idea of McDonald's ever winning or losing to a five-star restaurant is ridiculous, and no one would see the two as being in competition. People understand that people have different desires in different segments of the market (and often just in different circumstances, many people eat at both restaurants at different times). Perhaps in very fast-growing markets someone can aspire to be all of those to all people, but as growth naturally slows down, that becomes harder and harder.
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