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He's not a longtime member of the technology community or even a company lifer. Instead, he came from consulting firm McKinsey about four years ago. What does that mean? It means that George is a wealth of data when it comes to price points, demand elasticity and customer surveys. Editors from CNET News.com recently spoke with George about Dell's move into consumer electronics and what that portends for the competition.
How's the U.S. consumer business looking these days?
We are pretty excited about the potential to really expand the role
of the PC as the central entertainment appliance in the home and then
to market an array of access and communication devices. We are really
focused on the top three or four usage models around the PC and trying
to make sure we have--either through Dell directly or through our
partners--the right products and services.
For us, photography means continuing to expand our printer lineup. You have seen us morph our printer line into a line that has a pretty rich photo capability. We also sell a lot of digital cameras. That business has really grown. Today, that is all through partners like Canon and Kodak. I don't anticipate at this point a change because I think those companies have great camera lineups.
How do you decide what to go into?
We look at every category in the digital home and ask a series
of questions. Can we add a lot of value to that marketplace, or do we
think there is a big price umbrella to go after? Or do we think we've
got some unique supply partnerships or advantages in the market? We
rank ordered the priorities, and cameras just fall a little bit lower
for us. It's not obvious that we bring great supply advantages, and
again, we think our partners do an awfully good job. That was a very
different story in printers and a very different story in TVs.
So tell us about TVs.
Consumer electronics stores are quickly moving to be digital-TV stores
because they can get a 40 percent markup on those products. The reason
I put the focus on big-screen digital TVs is, that's where they're
getting all of their gross margins. That spells opportunity. Our plasma
launch was a great example. We came in with an absolutely awesome
quality 42-inch plasma TV for US$3,499. Sony's product is US$7,999, and the
other guys are in the US$5,000 to US$6,000 range.
In terms of your growth strategy, what you have described is fairly
predictable. Are there some solutions in this area that people aren't
thinking about, that you think offers Dell growth potential?
I don't think you'll see us pushing any radical new solution.
How about video?
We're not ready to announce anything yet,
but we are kind of talking to a bunch of folks, and I think we will
have some video partnerships in the near to medium time frame.
For downloading movies, for example?
Those are the kind of
things we're looking at. Again, that market is a little more immature,
but conceptually, there is really no reason we won't do something like
that with movies.
I have talked to lots of the traditional CE players,
and they say Dell faces two problems. The company has no retail shelf
space, and you need it for home consumer electronics. Two, product
design. Dell doesn't have a huge history of designing a lot of products
for the home and making that emotional connection with consumers. Are
those real issues and, if so, how are you directing those?
We are not overly concerned. We think this market will mature
like most other markets are maturing. You can debate analogies, but I
honestly think that 10 years ago, when you were looking at buying a
US$3,000 to US$4,000 PC, some people said direct sales wouldn't work. We've
seen a high level of interest in our products. The competitors can poke
fun at our design skills all they want--which is fine. I think that you
judge for yourself. These plasma TVs are fantastic-looking products.
I've got a 30-inch LCD in my living room. I don't think anyone would be
anything other than thrilled to look at these products and have them in
their home.
With everyone getting into this market, are we going to see consolidation and price declines?
Yeah, we will absolutely see it in this market. This is the only
prediction I'll make today. A margin decline is a good thing because we
have structurally the lowest costs.
Do you have much of an overseas opportunity for your CE products, or is it primarily a U.S. push?
I think we have a good overseas opportunity. I would view (our
strategy as, first and foremost, win the business customer, and win the
enterprise customer.
Even in Japan?
Japan is a wonderful market for our
flat-panel TV. It's a wonderful market for small PCs. Our business in
Japan is quite good, and we're rapidly approaching No. 1. We're not
there yet but are rapidly approaching it.
What point will drive the adoption of the Dell Digital Jukebox compared to the Apple iPod--like Dell PCs compared to Macs? What needs to happen?
I don't know, and it's honestly not a particularly high focus for us.
Music players are not in the Dell scale. They're not a particularly
large market. They are huge for smaller companies, but for us, they
will never be a large market. Would I love to be the No. 1 player? That
would be great, but that's a market where I give a ton of credit to
Apple Computer. They came up with great products and a nice music
service.
What fraction of your consumer electronics sales go to existing PC
customers, and what fraction go to people who haven't bought a PC from
Dell?
That's been a bit of a surprise for us. When we started to
play around in these markets, we assumed that these would be
overwhelmingly sold to existing customers. I can't give you really
precise numbers, but we have recently measured a few of our newer
categories, like music players and TVs--and 52 percent are going to new
customers. While it's too early for this to be really definitive data,
it appears that those customers have a disproportionately high
likelihood of then coming back to us and buying the PC. So that's a
double win.
Are they using Dell PCs at work?
Perhaps. We don't know that. We know from our database that they've never bought a Dell PC from us directly.
Is that changing your marketing strategies with these new products, in terms of where or how you advertise?
One of our most important advertising vehicles is the Sunday newspaper insert.
People opened up because of the TV?
We captured their interest. Maybe they've gotten a little bit
used to the insert. They may not be in the PC market, but that TV
catches their eye.
Is price your main asset?
Dell's great secret and success in the PC market
is that we have a fairly low market share among value-price PCs and an
absolutely dominant market share among high-end PCs. If you were to use
third-party data like IDC, what you would find in the sub-US$500
category, which is the overwhelming share of PCs sold at retail, is
that we have about 3 percent market share; in the category US$1,500 PCs,
we have between 50 percent and 75 percent market share.
So it is not surprising that we're winning in high-end electronics because we are taking that same customer. Again, the vast majority of customers that spend more than US$2,000 on a PC come to Dell. It's those same customers that are earlier adopters of the digital lifestyle.
What is the sweet spot for TV pricing?
I'll give you a couple of examples. The 30-inch LCD TV has turned out
to be a real winner for us. We saw some interest at US$2,999. When we
started to drive that price down to US$2,499, we saw high interest. We
recently broke to the sub-US$2,000 barrier and have seen some very high
interest.
Based on that, we've done something different in plasma. The US$3,499 plasma is in a sense equivalent to the LCD at US$999. Had we been following the LCD pricing strategy, we probably would have priced that plasma at US$4,499, but we said, "Let's go right to the US$1,999 equivalent price." That's our best judgment that that price is kind of breakthrough for plasma.
On other notes, how is the campaign against spyware going?
Spyware is a huge issue for the industry. We've seen calls related to
spyware grow from less than 2 percent to of our calls 14 months ago to
20 percent now.
When people call us, they don't know they have spyware. Unfortunately, the solution can be as painful as an operating-system reinstallation. Step 2 is to educate people about how you need a spyware blocker on your PC or a spyware removal device.
We have offered a free spyware diagnostic tool on our site, and we're
trying to get everyone educated that if you're not using a spyware
tool, you're going to be in trouble. Ninety percent of consumers have
spyware on their PCs.
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