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Hidden in Dell's recent announcement about personnel changes was a hint of a message that
may turn out to be the most important strategic shift in the industry as 2007 unfolds. Aside from
hiring well-seasoned managers from other industries (i.e., automotive, banking, consulting, and
consumer products) as well as high tech, the company has redrawn the lines of its internal
organizations. The shift may appear subtle at first — the former Client and Enterprise Groups
have been redistributed as the Business and Consumer Groups — but make no mistake, this
change is big.

We in the industry have been talking about "form factors" for so long, we've forgotten what the
term means. It sounds like something having to do with the shape of the computer, as in, "that's
an elegant form factor." What we mean is the different product types: desktop, notebook, server
and their finer subdivisions (e.g., subnotebook, tablet, living room entertainment center).

But now that the industry is maturing, it's important to start looking at markets from a true,
customer-centric vantage point. There are a number of reasons that this change should happen
now, but they all add up to the fact that customers are now the best way to organize products. In
the past, the industry has kept customer segmentation below the product level. So, the
notebook group at Dell had primacy and divided its products into Latitude for "relationship"
(business) customers and Inspiron for "transactional" (consumer) customers.

But here's the thing: starting about now, we're going to begin to see what were formerly thought
of as "enterprise" products in the home. Consumers will begin to build home networks with
network attached storage to save and back up precious digital memories; media servers to
make photos, tunes, and video available to anyone in the house; wireless hubs to blow all this
content over the local airwaves; routers to hook everything up; and switches to allow everything
to talk to everything else. These devices will connect an array of endpoint clients from
synchronized phones and small handhelds to living room entertainment centers with large
displays and multiple speakers. But a vendor's consumer segment managers won't want their
enterprise sales group and product development team in there talking to their customers.
These managers want a consumer-facing organization making the benefits of the whole product
line clear to potential buyers and carrying buyer requirements back to the product teams. The
NAS device, server, and software sold for the home will differ from similar products sold to
enterprises. They'll likely have fewer choices and simpler interfaces to start with.

The IT department in a large organization, on the other hand, just wants to know where its
children are, whether they're all in bed, and whether their teeth are brushed properly. It doesn't
care whether they're boys or girls, just that they're all safe. That is, IT doesn't have a burning
need to know if a PC is a desktop or a notebook, but it does need to be able to take a complete
inventory of all connected systems and know whether their virus definition files are up to date
and whether they all have the latest drivers and software patches. Yes, notebooks are often only
intermittently connected, whereas desktops are usually always connected, but essentially, the
two are similar from the corporation's point of view.

Silicon guys — Intel and AMD — have some culpability here. Because they make most of the
money on the hardware side, they are the ones who tend to set the segmentation schemes. By
underwriting advertising, the silicon firms have an inordinate say in how the PC hardware OEMs
pitch their products. But it has come to a moment of "lead, follow, or get out of the way" for the
chip folks. They have been saying that they need to organize themselves according to their
customers' divisions; that is, AMD and Intel need mobile groups to talk to Dell's, HP's,
Gateway's, and Lenovo's mobile groups. But really, the chip guys are the ones who set the
agenda.

Let's look at Intel's branding. First, of course, we have the master brand, Intel. Can't do much
better than that. Widely know; well respected. Then, we have the successful Centrino (now
Centrino Duo, for dual core), a platform brand which stands for mobility (i.e., power miserliness
and wireless). On the desktop side, though, we have two segmentation brands, Viiv (for
consumer) and vPro (for enterprise) and no overarching platform brand. These two have yet to
get much traction. Moving on to processors, there's Celeron, both desktop and mobile, which
covers the low end. Not a segment exactly, but a price class. Celeron, originally designed to
fend of the bottom-feeding Cyrix C2, was always meant to guard the low-end flank while not
stealing too much from the premium parts. In this goal, it has been unbelievably successful,
having existed for nearly a decade without having killed off — or even wounded — Pentium,
Intel's best-ever processor brand. Aside from the aging Pentium, which is on the way out,
there's the new Core family, made up of Core Solo, Core Duo (on the way out), Core 2 Duo, Core
2 Extreme, and sooner or later Core 2 Quad. This brand will go across desktops, notebooks,
and some workstations. Servers have their own brands, Xeon and Itanium (with a few older
Pentiums thrown in). There's also an architecture, not a brand, called Core, and there's also a
term of art in the chip biz, lower-case "core," which refers to that part of the processor where
most of the thinking gets done. Got that?

Now, AMD has made a good business skiing across Intel's wake, and in branding it's not much
different, albeit a tad less confusing. Many people now know about AMD, the master brand,
thanks to a program similar to Intel's "Intel Inside" campaign. Matching Centrino, though
somewhat less successful, is Turion, the mobile brand. Servers have the highly successful
Opteron, and desktops have Athlon, although some workstations also have Opteron. Sempron,
AMD's answer to Celeron, covers both desktop and mobile parts at the low end. Rather than
segmentation brands for its products, AMD offers Live!, which is a set of software and services
for consumers, and Trinity, which groups functions that IT cares about, like virtualization,
security, manageability, and standards, under one roof.

Thus, the processor makers are trying to have it all ways, mixing product, platform, price, and
segment brands in a mishmash out of which it's pretty hard for normal mortals to make sense.

Interestingly, Microsoft, the other large underwriter of IT industry marketing, has long been
organized along customer segment lines. Its software runs without prejudice on both desktops
and notebooks, and its new Vista products are clearly grouped by customer segment: Home
Basic and Home Premium for consumers; Enterprise and Business for organizations. Ultimate,
essentially Enterprise without the volume license, covers the waterfront with a combination of all
Vista capabilities, and Starter, sold in developing markets, is a price brand whose function is
analogous to Celeron and Sempron.

So, perhaps the silicon companies can take a cue from Microsoft and Dell and begin to realign
their organizations to fit the new, more appropriate segmentation schemes. Dell removes the
excuse for the chip vendors not to do it. Other OEMs are likely to follow. Customer segment is a
more important distinction than product type, particularly as the industry matures. This moment
in time represents an opportunity for the whole industry to grow up and become more customer
centric. Not only will the companies do better, but their customers will have a better experience
dealing with them, all to the good.

© 2007 Endpoint Technologies Associates, Inc. All rights reserved.