The amount of people who began to cry into their milk when it was announced that Dell has bought Alienware was a bit sad. “Ohh, this’ll be the end of Alienware, Dell will screw it up” and suchlike, followed by coy winks and nudges about the AMD connection and Michael Dell’s personal image ambitions… it’s all a bit of a storm in a teacup, no?
For one, despite the “Willthey/Won’they?” speculation in recent weeks, the move itself makes perfect sense in an “it’s inevitable” sort of way. Dell – the company and the personality behind it – has been desperate to push itself in the consumer end of the business, in which they’ve not been doing quite as well as expected. Dell has an image and a mindshare problem with gamers, and the obvious way to sort this out is simply to buy someone for whom the coin is flipped the opposite way.
As Alienware’s vice president of marketing Mark Vena put it to me on Friday, “Alienware is branded like a BMW or a Porsche, while others are branded as Hondas and Toyotas. These are still great brands, but there’s that difference.”
Alienware, being the volume and branded leader in the high-end gaming field, is the obvious choice for Dell to acquire. Alienware has provided the most robust competition to Dell’s own XPS range; the company has a cool image and plenty of mindshare. They’re also of the same mind as Dell where selling is concerned, and Alienware follows much the same model as Dell; not selling in shops for example.
The cost of buying this makeover lock, stock and barrel is hardly more than pocket change for Dell – something they’ve outright said since the deal was announced, though exact figures haven’t been revealed. In all the figures we can look at however Dell is like the Red Army compared to Alienware’s merry band of partisans – the consumer end makes up 15% of Dell’s business, and the company had sales of $55.9 billion last year, compared to Alienware’s measly $200 million. Dell wants that end of the pool as a growth and image area, not because it needs it to survive.
Since it’s the shallower end of the pool, what happens when a massive Blue Whale like Dell jumps in? Well not much for the moment, I should imagine. For one, Dell has to hold off on doing anything to or with Alienware for a good 30 – 60 days so that US regulators can take a look at the deal. That means that we’re going to have a month or two of speculation, but business will continue as normal.
Thereafter, Alienware’s direct competition, the Falcon’s and Voodoo’s of this world, can expect to feel the squeeze simply because Alienware will have Dell’s experience, expertise and perhaps direct support in getting their machines to their customers. Alienware is pretty efficient as it is, but the machine that is Dell is not to be underestimated in its abilities to dredge every last ounce of efficiency out of the order to delivery process.
According to Vena, Dell will be handling Alienware’s suppliers. “It really simplifies supplier’s lives to only have to deal with the one person. Plus Dell gets a lot of allocation of new products such as graphic cards, and all of this can help bring down our lead time from ordering to delivery.” At the moment, depending on what you order, you can wait between three and six weeks for your machine to arrive, especially with the delays caused by scarcity of new products. “We hope to bring that down to two weeks in most cases,” Vena told me.
Dell can also lean in to make Alienware a more flexible company, allowing it to do more in areas such as financing with its massive amount of financial backing. “We can now do things we simply couldn’t do before with our current volumes,” said Vena, and this will certainly begin to make Alienware a more attractive offering to many. In the present order of things even Alienware can’t afford to back the kind of financing of their ultra-expensive systems that Dell can. Now they have the best of both worlds.
How does AMD fit into the Dell/Alienware picture?
How Dell will influence the direct internal structure of Alienware remains to be seen, and it’s this which would have the most impact on the world at large. We don’t have much of a track record to go by, as Dell generally doesn’t do acquisitions. While the brass at both companies are assuring their employees that after this week “everything will remain exactly the same, only different” it wouldn’t be the first time if, in a few months, we then see a major cull of management at Alienware; and anything from new direction to the complete absorption of everything bar the brand and the case designs directly into the Dell machine itself.
Vena says that some executives have agreed to multi-year engagements to ensure that the company transitions smoothly, although his use of the word “some,” coming from an experienced marketing type as he is, might give some ammunition to speculative types in the audience.
Personally, I doubt that in the short to medium-term Dell will do anything so drastic. It mainly comes back to their image problems – Dell knows that, for the most part, the (consumer) buyers of their office machines and more generic boxes don’t care about any of that. They see the advertisements, they see the price tag, and they buy. The audience that Alienware and its peers sell to, and which Dell has largely failed to conquer with its XPS range, is the tech-literate audience who are constantly reading sites such as Tom’s Hardware.
They pay attention to the tech world, and nine out of ten people who have or will buy an Alienware, or similar, machine in the future knew within hours that Dell had bought Alienware because they always have one eye on the industry. Similarly if Dell gobbles up Alienware whole they will know perfectly well what they’ll be buying into and make purchasing decisions appropriately.
Alienware will get more competitive, and put the squeeze on its peers, but in the world of high-end gaming for the tech-literate I can’t see Alienware becoming the undisputed Number 1, as if nothing else gamers don’t like to see a monopoly and would take their money elsewhere if they thought Alienware were about to become a Dell in terms of market position.
As for the ramifications of this deal on Dell itself, and the wider tech world, we can’t go forward without mentioning AMD. Dell has been flirting like a 14 year old girl with the company on and off for many moons now, and certainly buying a company that deals quite heavily in AMD chips cannot go unnoticed. One ramification of Dell possibly gobbling up Alienware whole at some point in the future would be to end the debate and bring the company into the AMD camp.
I’ve learned better than to say “Dell is definitely switching to AMD now!” So I won’t. What Dell does with regards to AMD via its new satellite gaming company will remain as much a mystery as it was when, in January around CES time, we were told, and many began to (once again) excitedly proclaim that they’d have done the dirty deal by March.
One thing we do know that is Dell will be handling all of Alienware’s suppliers, which Vena told us includes AMD. He was cagey about what that means specifically, though it does leave an obvious open channel between AMD and Dell themselves that didn’t exist before.
In the backroom world of cloak and dagger, anything could be happening. Intel might be falling over themselves to make sure Dell remains onside. Or they could have assented to the deal so long as Dell itself stays firmly in the Intel camp. Or Dell could have already signed a deal with AMD months ago, and we’ll hear nothing about it for months more. We could chase these mice around inside our skulls forever. Personally, I prefer to do more productive things with my time and then come what may.
What about Dell’s own XPS range? At the same time as we heard about the acquisition we got Dell’s Renegade XPS, which is far more expensive (for a stock price) than anything even Alienware is producing. Perhaps it’s just chaff thrown up to distract us, but Dell could do worse than use Alienware to highlight just how great their brand-spanking-new, balls-to-the-walls XPS range is. The XPS could become the real Porsche, while the Alienware machines come to be seen as more garden variety.
“Dell will be keeping their XPS range, and we see it as offering the customer more choice,” Vena told us. This is interesting, as Dell just outlaid a wad of cash to keep its own competition. The bets are now on as to whether, or perhaps when, Alienware’s head honco gets ticked off at not being allowed to do whatever he wants and storms off, regardless of agreements, as can happen in these acquisitions.
Personalities may mash there, as Vena told us that “Michael Dell really drove the acquisition from the beginning and has been very involved.” Now we’re not ones on this end to make crude comments about someone just wanting to be like Steve Jobs (Have I said too much?), but if for example the big personality that is Michael Dell decides that he wants to be seen as the man behind Alienware, there could be ructions in the board room. Toys have been known to be hurled from prams in similar situations.
Only time will tell if Dell will be the end of Alienware as we know it, though I’m personally betting on the companies converging, but still maintaining those vital two degrees of separation.