Why HP/VoodooPC can't be a Dell/Alienware

10:40 - Monday 2 October 2006 by THG Reporting Team
Source: Tom's Hardware – Keywords: voodoo, hp, analysis

Why HP/VoodooPC can't be a Dell/Alienware

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It's the most obvious conclusion that one could make without digging deeper into the acquisition details: HP's move is nothing more than a strategy to become a part of the PC gaming industry and the firm's hope to catch up with Dell, which swallowed Alienware in March of this year. And while there are similarities mentioned in the merger announcements - for example, both companies say that they intend to operate their custom PC builders as separate business units - the deals differ in key areas which imply that HP will be going a very different route than Dell.

Other than HP, Dell has been trying to establish its own gaming PC brand with the "XPS" series for some years. The series currently ranges from multimedia PCs with prices starting at about $1000 to the high-end XPS 700 that can cost more than $8000, when equipped with a 30" display. There are even notebooks and designer PCs for which Dell charges more than $7000. But price isn't everything in the gaming and enthusiast segment and Dell apparently felt compelled to add Alienware as a potential upgrade brand to its portfolio. In HP's case, Voodoo will represent the only and entire PC product line, at least for now.

Before its acquisition by Dell, Alienware already was somewhat the Dell of custom PC builders - with substantial production volumes and a R&D budget most boutique companies could not match. From this perspective, if HP really wanted to copy Dell/Alienware, the smallish Voodoo would have been a bad choice and the company should have looked at a manufacturer with similar volumes, perhaps Velocity Micro.

Also the simple addition of an exclusive PC manufacturer to a mainstream lineup isn't that simple and hides several challenges, including differences in corporate culture, customer expectations, product development and marketing. While it isn't completely clear what purpose Alienware will have for Dell in the long run, it appears at this time that it may mean to Dell what Lamborghini means to Audi or what Jaguar means to Ford - an established brand that can transition experienced users from the mainstream to the high-end in exchange for the willingness to pay extra for an additional sense of luxury.

During a conversation last July, Dell chairman Michael Dell mentioned that the Dell and Alienware brands own a combined share 60% of the high-end gaming and enthusiast computer market in the US - which leads us to believe that Dell will pursue a strategy of driving that overall market with XPS and Alienware almost next to each other, or at least with the possibility of some overlap, as two separate brands. However, just like Ford has experienced, adding a flagship brand not always pays off, and even Dell may have to adjust Alienware's strategy, as revenues aren't that significant yet: During the announcement of Q2 2006 earnings, chief executive officer Kevin Rollins told analysts that the revenues generated by Alienware were "negligible." And the future will tell, if Alienware's existing customers will stay or move to other boutique players, if Alienware has to create a new customer base and if Dell will have to use some incentives for XPS owners to trade-up.

In essence, Alienware has revenue responsibility. Voodoo certainly has that as well, but it appears to be more a side effect of its main purpose - to accelerate the adoption of new, high-end technologies in the commercial market that will trickle down into the mainstream over time.


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