Call It Apple Envy - Dell's new XPS line shows that the hardware giant may be taking a page from Steve Jobs's playbook.

Fortune, October 12, 2005, by Betsy Morris

Whenever Apple unveils a new iPod, as it did Wednesday, it creates a scene. (This time, among other new products, it announced a video iPod that will play anything from Pixar movies to Desperate Housewives.) When Apple disappoints the street, as it did when it reported after the bell Tuesday, it hurts the whole market. (Despite a 57% jump in revenue in its fiscal fourth quarter, it had been expected to sell more iPods, and the Nasdaq slid in sympathy today.) No matter what Apple does these days - good or bad - its brand is hot enough, and its products are cool enough to grab the limelight.

Either way - in this crowded tech market -- that's got to be a whole lot better than being ignored. Just ask Dell. The company's recent unveiling of its new XPS desktop and notebook computers, was basically, well, a yawner. Never mind that the XPS line - which Dell calls the "Lexus" of its offerings - is a huge strategic departure for the hardware giant. First off, the new XPS machines are slicker, faster, and more expensive than Dell's big-selling entry-level offerings. (Starting at $1,000, they can be configured with home-entertainment and other add-ons to bring the total price tag to $6,000 or more). But more important, they show how Dell is trying to take the PC market upscale - the opposite of what it, Lenovo, Gateway and even HP have done in the past - where margins are fatter and the "coolness" factor reigns.

Indeed, the significance of XPS is not the machines themselves, as some tech snobs are quick to point out. (The computers feature Intel processors, not the AMD ones many gamers prefer-and aren't nearly as elegant as the Apple designs.) Rather, Dell's new move is a sign that - much as the rest of the industry loves to disparage Apple - it finally may be taking a page from Steve Jobs' playbook. Namely, the PC doesn't have to be a commodity - or even a single product at all, says Mike George, the head of Dell's U.S. consumer business. As Dell describes its new XPS line, it is not just the computer, but a whole bundle of stuff that can include: the ability to connect to the TV, cable box, MP3 player, and more; sharper graphics; and kid-glove handholding and special service for users. Dell says each customer will be assigned his own consultant, a specialist who can help with issues that may arise when hooking the computer up, souping it up for serious gaming, and so on.

Dell is aiming XPS at three segments - gamers, tech enthusiasts and well-heeled family-types who are increasingly interested in creating an entertainment hub in their homes. The last group, marketers say, is potentially the biggest. "This is a whole new segment," says Stephen Baker, director of industry analysis at NPD Techworld, a marketing consulting firm. "HP, Gateway - they've never offered an upscale PC, and it's clear (from Apple) that people are willing to spend the money on it." In the long term, Baker says, "you'd hope you could develop a class of buyers who don't just buy on price" and begin, incrementally, to move consumers up the price ladder again. David Aaker, brand expert and vice chairman of Prophet, a San-Francisco based marketing consulting firm, says a successful XPS line could be a "brand energizer" for Dell, much as the iPod has been for Apple.

But, can Dell pull this feat off? What with the "Dell Dude" campaign, and the constant barrage of fliers arriving in consumers' newspapers and mailboxes, Dell has been what Baker calls a "bludgeon-you-to-death" marketer. XPS will require much more finesse. For now, their initial approach in TV ads (which look more like BMW than tech commercials) seem promising - the tagline is: "The ultimate experience." Beyond that challenge, the bigger question is whether Dell, which perfected the low-cost "Dell Way" that became the envy of the business world, can get over its penny-pinching ways and spend the money it will take on service and design to stand out in a brutally competitive market. "Lexus buyers like the fact that their cars look different, never mind what's under the hood," says Baker. Dell will need to convince PC buyers that the XPS is "not just a $299 Dell in sheep's clothing."