How Dell Plans to Beat Apple

At a meeting a couple weeks ago, the new Dell marketing officer Mark Jarvis is quoted by the San Francisco Chronicle as saying that he wants Dell to become as sexy as Apple.

Then he went on to say, "Apple has become the conformist company. I want Dell to become the different company."

Say what? This, mind you, from the company that gave up on MP3 players last year after Apple totally blew it out of the market.

So the only way that's going to happen any time soon is if Steve Jobs happens to be reading the interview while eating his granola, or whatever he has for breakfast, and he starts laughing so hard that he chokes, falls out of his chair, hits his head, and .... breathes his last.

And who knows, there are probably a dozen more innovation stars at Apple who could carry the torch for many more years.

To paraphrase Lloyd Bentsen, "I knew Steve Jobs. Mr. Marketing Guy, you're no Steve Jobs!" At least not until he proves it. And it takes a lot more than spiffy colors to make real innovation.

So what would it take for Dell to be considered as innovative as Apple? Some real innovation wouldn't hurt. But as of now, Dell's R& budgets are among the lowest in the industry, and its competitors have ridiculed the tiny amount that company spends. Instead, it has historically outsourced innovation to its suppliers.

For Dell to pass Apple, that is one thing that will have to change.

The Asset Tail That Wags the Creating Dog

The frequent flyer program of American Airlines, AAdvantage, is currently worth more than the airline. According to an Icelandic investment fund, the program is worth $6 billion, about 1/2 a billion more than the airline, whose market cap is about $5.5 (which is $200,000 less than it's cash balance of $5.7b).

A September 28 article by AP's David Koenig tells the story.

This is similar to the situation faced by GM not long ago, when it's GMAC finance subsidiary was earning 5x more in profits than the manufacturing arm.

Nor is it much different than the plight of many small business owners, who, after operating for many years and then get ready to retire, find that the only asset of value is the real estate that they've been faithfully paying off for decades, while the business itself can't find a buyer.

GM sold a 51% stake in GMAC for $14 billion last year, giving it much-needed cash to invest in its turnaround (which, after reaching a deal with the UAW this week, is looking plausible).

Will American sell AAdvantage? Probably not. The company is not under financial or operating pressure, and American Chairman Gerard Arpey didn't express much interest in the idea.

From the standpoint of innovation, what's particularly interesting about all this is how value shifts to various different parts of the business depending on the context and situation. AAdvantage is a services business whose primary asset is its membership; the membership exists because the airline exists, but once the membership and the airline become separate entities, as they have, then the membership as an asset in itself can be monetized. Back in the late 1980s when AAdvantage was created, who would have thought that the values of the 2 assets could have switched as they have.

Given the stresses that airlines are currently under, and will continue to be under, creating subsidiary assets of significant value that extent the core operation into new areas is a meaningful innovation strategy, and one that companies will continue to pursue, even if most of them do it by accident.

Made By China

In addition the scandals around lead paint and poisonous dog food there is another important trend happening in Chinese manufacturing, and this one might be more enduring. People throughout China now understand that being the world's manufacturing district has its advantages, but also its limitations. Hence, I have heard from many Chinese the desire to shift from "Made in China" to "Made by China," by which they mean not only to make the world's goods, but also to conceive and design them.

Consequently, innovation is becoming a popular topic there.

It's a long way to originality, but as the Japanese learned during the 1960s, 70s and 80s, the path to originality often lies through imitation.

The September issue of Popular Science displays this thinking with a cover story on the iClone, a copy of the iPhone, albeit with improvements. It's quite a good article.

(By the way, I hadn't read Popular Science since I was kid, but I was impressed. There were a lot of really interesting stuff.)