More on Dell and Alienware

Yesterday’s post is still on my mind, unwieldy because I was overwhelmed by too many ideas and concepts. For clarity, I’m going to just look again at Dell and Alienware. Rant over, now one can evaluate their corporate strategy and investment in design.

I’ve had a weakness for brands colliding, and this acquisition is irresistable – snippets from various news media reiterate over and over how Alienware will only benefit from Dell’s supply chain efficiencies, and not allow their design strategies to be affected.

But Dell’s efficiency will not hurt Alienware’s product development
process, Gonzalez said. "We’re not going to sacrifice the design of a
product for the sake of the efficiency," he said.

Similarly, others are hopeful that Dell will benefit, if only by association, from Alienware’s reputation for cool design and hip branding – figures of speech that are being used consistently across the reports. What’s interesting however are the speculations that this acquisition has it’s roots in Apple’s meteoric rise in recent years, demonstrably due to their commitment to design and ‘hip’ branding. Apple’s market cap, according to this post, is now greater than Dell’s, though one company is much much smaller than the other based on other metrics. Arik Hesseldahl goes on to say,

Dell’s all about large contracts and low-cost commodity PCs, and much
less about rocking the boat with innovation and unconventional
industrial design, which is Apple’s forte. Dell is who you call when
you need a quick-and-dirty Windows machine; Apple is who you call when
you want a higher-quality, premium computing experience that costs more
but at least for my money is more stable and vastly more satisfying.
And of course Apple has a secret weapon in the iPod.

Apple’s description, in this January 14th 2006 post, sounds incredibly similar to the analyst’s evaluation of Alienware – rocking the  boat with innovation and unconvential industrial design. After all, is there another computer in the market with glowing green alien eyes? At the same time, this acquisition has been incomprehensible to many, due to the glaring dissimilarities between Dell and Alienware,

"I still think it’s a bad idea, and a bad fit," said Stephen Baker, an
analyst with NPD Techworld. Alienware’s customers buy from that company
in part because of its image as a technology-driven company that
understands the needs of gamers, while Dell is viewed by those
customers as a stodgy corporate supplier.

On the other hand, it’s taken for granted now that commodification and price leadership are limited strategies for topline growth, that customization and emotional appeal through design, all allow for higher margins and brand equity. This acquisition, imho, is a clear signal, that the role of design as a strategic force for increasing shareholder value has penetrated the reaches of the most corporate of players, viz.,

Rebecca Runkle of Morgan Stanley said the Alienware deal was evidence that Dell was making "the right investments".

"Industrial
design and hip branding are two important factors in the high-end
consumer and gaming PC segments and, quite frankly, Dell lacks in both
these areas," she said.

Design is an element of operational
effectiveness
, in which context, this seemingly incongruous purchase
makes sense, Dell’s reputation as a leader in operational effectiveness is unquestioned. And my personal suspicion is that Dell’s strategy is at once,
extremely focused and extremely broad – to be the number one computer
company in the world. This is going to be very interesting from the business and design perspective.

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4 Responses to More on Dell and Alienware

  1. I heard an interesting point about this acquisition on a podcast the other day (I think it was Gillmor Daily). Someone remarked about the oddness of the fit and someone else said, “well, Alienware’s not making anything special anymore. They now make an $800 entry level ‘gaming’ machine, which puts it right in Dell’s zone.” Point being, of course, that maybe some of the “coolness” has already worn off Alienware.

  2. niti bhan says:

    Tom,
    Yes, I read about it in one of the analyses I came across, from CNET news http://news.com.com/Dell+to+acquire+Alienware/2100-1003_3-6052842.html
    “Alienware sells very powerful and very expensive PCs to the top tier of the gaming market. Dell, on the other hand, has a stronger identity with casual gamers who want a good PC but don’t want to pay Alienware prices. Both companies have recently tried to appeal to gamers that fall in between those two groups, with Alienware reaching down and Dell reaching up, Kay said. It’s unclear how those strategies will continue.”
    I think the $800 PC that overlaps with Dell that you are referring to is what is being mentioned here as the possible trouble area in this merger, in addition, there’s this paragraph,
    “The deal also could mean that Dell has to rethink its consumer PC strategy, said Roger Kay, principal analyst with Endpoint Technologies Associates. The company has sunk a lot of effort into building its XPS lineup of high-end desktops and notebooks for gamers and multimedia enthusiasts. Now, it looks like those systems compete with Alienware in certain areas, he said.”
    However, with respect to your point about the “coolness” already worn off Alienware, I suspect that there’s more to this acquisition than obviously meets the eye – hence my obsessive posting on the topic this weekend 🙂 What I wrote in Fast Company’s blog was this, (for by then I’d digested the complexity I was attempting to with all these posts :),
    ” Its simplistic to view this acquisition solely in chess moves – ‘controlling a competitor’, ‘diversifying into AMD chips’ or even, ‘reaching a new market’. While all of these may be viable reasons, I believe that there is more to this move than meets the eye. My suspicion is borne out by amazingly similar moves in the same time period by very large firms in totally different industries, viz., Colgate’s purchase of Tom’s of Maine and L’Oreal’s of The Body Shop. In all three cases, the acquiring firm is one that a) does not have an intangible quality, approach or brand image that the acquired firm does and b) have all promised that the acquired firm’s brand and product strategy will remain untouched and each will operate as an independent unit with the continued guidance and support of the original founders.
    Mayhaps, what all of these acquisitions imply is an acknowledgement that there are intangible qualities important for good business and continued growth beyond the obvious bottom line that the behemoths have followed till date.”
    I get the sense that Alienware – coolness factor notwithstanding – has a quality, be it an understanding of their customers, empathy factor or whatever, they’re closer to the consumer and the market, in terms of understanding in a way that Dell isn’t – partly due to Dell’s market being more corporate bulk sales, partly corporate culture. And this is the essence that this acquisition is trying to acquire, so to speak.
    Also, one entry level ‘gaming’ machine doesn’t constitute an entire change in their product line or approach, alienware is still closer to being an “Apple” culturally, product wise, brand wise, than DEll can or ever will be. I don’t believe coolness can wear off by one product or product line, taken in the context of one’s entire production output, history and range.
    I’ve rambled on… but what do you think?

  3. niti bhan says:

    And far more succinctly – I’m a member of the target audience, a gamer who was looking for a high end machine. Someone who lusted after Alienware’s top of the line $3000 plus range but “settled” for a $1700 Dell which gave me the power at half the price. Had I the money, I *would* have bought Alienware. To me, having eyed Alienware for years now, and aspired towards owning one, they are “Cool” and if I could afford one of their “cool” products, I would buy it, were it to map on to my computing needs.

  4. I wonder what “the kids” think. You know, the hardcore. My bet: wouldn’t be caught dead with anything that said, “Dell” on it.

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