An Important Next Salvo in Dell's Consumer Counter-Attack

Dell put out this minimialist press release about its acquisition of Silicon Valley-based ZING Systems Inc. today. But while the price was not large enough to require that it be disclosed, the implications of this deal are big, indeed. It’s a sign that Dell is serious about getting in on the booming consumer market. I’m not talking about hitting new price points, or making cosmetic improvements to its existing products. And I’m not talking about much-needed defensive moves, such as investing to upgrade its much-maligned customer service or squeezing out a spot on the retail shelves at Wal-Mart. Rather, buying Zing suggests Dell has a plan, or at least a desire, to differentiate itself in new ways.

That's because Zing sells software that it licenses to hardware makers, that let consumers find, play and share streamed digital media. It's software is what lets owners of Sansa's Connect MP3 player get real-time streaming of music from Yahoo's Music Unlimited subscription service, or tunes from Sirius' satelite radio service onto Sirius' Stiletto player. The software works over WiFi (kind of like an iPhone when a Wifi network is available), and features a slick user interface that lets consumers "zing" recommendations to others who own those devices.

Zing CEO Tim Bucher, a former hardware engineering executive at Apple who helped develop the Mac mini and worked on the effort to move Macs to Intel chips, wouldn't give any details about Dell's plans for Zing (other than the fact that Dell will hire all 125 of its employees, as well as Bucher). But he does say that the acquisition is part of something bigger. ”We’re not at liberty to disclose exact product plans, but there’s a great movement afoot for a large, exciting consumer initiative from Dell.”

My sense is that Dell sees Zing as a means to move "beyond the box," and more into services. That was one of the key points the company wanted to get across with its recent introduction of new Vostro models aimed at small businesses. Dell could conceivably use Zing's technology to create new ways to move music between their PC and their Zing-enabled gizmos--say, to quickly grab a song on your hard-drive to "zing" to a friend you run into at a party.

On paper, at least, Zing could help Dell stand out against Apple, after its humiliating failure with its Dell DJ line, which was discontinued earlier this year. That's because Zing's software is designed to work with various Windows Media-compliant services, including Real's Rhapsody and Yahoo's Music Unlimited. "Zing was mostly focused on untethering great services to create improved mobile experiences," says Bucher. "Dell has no content play of its own--no iTunes or Google or MSN or Yahoo. So they are perfectly aligned with our vision of giving the consumer choice.“

Bucher says Dell beat out a few other suitors, all of whom began talking acquisition after being invited to invest in the company's pre-IPO round. He says the company had raised only $15 million, yet was generating enough cash to last it well into 2008. "We did not have to sell," he says. Evidently, part of Bucher's enthusiasm is a result of the enthusiasm of Michael Dell himself, who he says had a major role in doing the deal. While Alex Gruzen, senior vice president of Dell's consumer products group, first championed the deal, Dell got personally involved after his daughters praised their Zing-enabled music players.

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