You've got to love the Internet; specifically, blogs. When tablet PC users, enthusiasts, and evangelists expressed their disappointment with Dell's pricing of its newly released Latitude XT, Glenn Keels from Dell responded on the Direct2Dell blog. He said:

So here's what I have to say on the issue. Probably the most important thing to note about tablet PCs is that we are talking about cutting-edge technology here. If we just released the exact same technology as our competitors, we would be missing opportunities to drive this market to the next level - and this is an opportunity we did not want to miss. The result is that our product does carry a slight premium to our competition (emphasis on the word "slight").

We believe that when you take a look at like-to-like configurations AND the incremental technology (that customers have overwhelming told us they want to have), the value equation for the Latitude XT far exceeds that of competitive systems.

He then went on to compare the Latitude to HP's 2710p and Lenovo's X61t, pointing out the areas in which Latitude outperforms the other two. Keels however conveniently skips over the bits where Dell is specifications-wise at par, and yet more expensive, than its competitors.

James Kendrick from jkOnTheRun did the maths for that and he wasn't impressed. Nor was Paul Miller from Engadget who had this to say:

Sure, we love the capacitive touch, and the build and size are great, but the machine is way underpowered in its $2,500 base configuration, and prices get astronomical -- nearly twice that of Lenovo's -- when you try to spec the XT up to the X61t's level.

Miller promises to "be back" with a response.

Thinking Strategically

As we've learnt in the MBA -- and as people in new product development will tell you -- in order to introduce a new product that you want to charge a premium for, you have to give your customers (a) the features they want and (b) the features they are willing to pay extra for. It helps if those features aren't already being offered by your competitors. That's what Keels was trying to point out in his blog post. Dell has four things in the Latitude XT that no other manufacturer has in its tablet PC offerings:

1. The brightest display (in both its indoor and outdoor versions); and it helps that it's a high-resolution wide screen
2. The most powerful graphics card
3. Dual touch capabilities with the additional benefit of capacitive touch
4. Dual input (i.e. both a trackstick and a touchpad)

All four of these are things that consumers have previously complained to OEMs about (i.e. that they are missing from current tablet PCs). Dell, on its part, has given consumers exactly what they wanted and asked for. What it seems to have underestimated, though, is that in order to get these four items in a tablet PC that costs the same as a current top-end tablet PC, you have to compromise in other areas. Specifically, you have to settle for a slower processor, a slower/smaller hard drive, and less RAM. And these are things that a lot tablet PC users aren't willing to give up. They've fought long and hard for OEMs to make tablet PCs that are both powerful and affordable and they don't want to go back to having to choose between price and performance.

The thing is, though, that Dell's pricing makes much more sense if you segment the market correctly. Corporate customers with large, existing Dell install basees should really be fine with this price. Companies don't necessarily want to get their mobile employees very powerful tablet PCs because an overwhelming majority of those employees don't need powerful computers. And for those who do need powerful tablet PCs, it's okay to pay extra because the benefits of a company-managed Dell outweigh the risks of buying an unsupported HP or Lenovo. The same is true for most students and professionals since they don't really need all that extra power.

It's only the people who want the best of both worlds -- such as engineering students or people like me who really do use computers to their fullest extent -- who have to make the price vs. performance choice (or, instead, choose a different OEM). The problem for Dell is that it's often these people who are the loudest. Let's see how Dell responds and how this plays out over the next few weeks.

Defining the Market a Little Better

Oh, and since I am doing my MBA, I sometimes get this overwhelming urge to explain things through pretty diagrams. In this case, though, that approach seems to make sense. If you plot price against performance, the five largest tablet PC vendors are placed in the tablet PC market as follows:

 

HP, with its 2710p, has the cheapest and least powerful tablet PC. Toshiba has two offerings -- the R400 which is low-powered but very expensive and the M700 which is high-powered and very decently priced -- and hence two spots on the map. Lenovo, with its X61t, is by far the most configurable so it's all over the place. Fujitsu, with its numerous sizes and configurations, overlaps with Lenovo quite a bit.

At the most powerful end, then, Dell is the most expensive, followed by Lenovo and then by Fujitsu and Toshiba. What Dell is trying to do is make its tablets more powerful -- that is, move further to the right which, according to this diagram, it is doing to some extent. It is trying to do this without making the tablets too much more expensive -- that is, move higher up which, unfortunately, it isn't managing to do very well (as Kendrick and Miller point out). If, however, I am underestimating how much more to the right Dell's oval is, then I guess the price premium is justified.

From a strategic point of view, though, Dell is following the typical tablet PC OEM strategy of targeting the corporate segment first. The advantage it has -- which Keels demonstrated in his blog post when he compared his product to only HP and Lenovo's products -- is that Dell in the U.S. doesn't really have to contend with Toshiba and Fujitsu in the corporate segment. And if you were to remove Toshiba and Fujitsu from the diagram above...well, you could then see where is Dell is trying place itself in the market, can't you?

Will it succeed with that market placement? Let's see how things pan out.