Buying cool
Oligopolies buy smaller companies obsessively. They do so to buy innovation, to stop potential competitors, and - to polish their image for hipness.
Take, for example, Dell Computer's recent purchase Alienware. Dell has made its reputation on low price and predictability. It sells PCs that have the latest components and the latest software, but basically it sells everyday machines. There are differences in price and performance, but basically the whole line is pretty much state-of-the-art PC, aimed at office and general home use, inexpensive and (generally) reliable. That's how Dell managed to get 33% US market share and the #1 ranking in the PC industry.
But as a Wall Street Journal article ('Dell's Quest for Cool", 4/11/06) notes, "Dell has accepted the fact that it simply is not cool, and the only way for it to get a cool brand is to buy one." Apple Computer, the article points out, is definitely cool, but it only has a 3% market share.
But Dell wanted to a group that will spend more money than the average corporate purchaser or housewife. They wanted to go after hard-core gamers. As the article notes "Gamers want powerful computers, of course, but they also want stylish systems made by a company that they believe understands them." Dell's high-end computers are fast enough, but they have no cachet.
Alienware, which has been around since 1996, makes snazzy high-end computers aimed right at the gaming segment. These units had space-age designs with a hand-crafted look, including "Star Wars special editions, and machines with liquid-cooled graphics systems (you can choose the color of the coolant)." And the semi-customized machines cost twice as much as comparably-powered Dell models and a much longer, less frantic lead time for delivery. It also delivers a high level of tech support, something Dell certainly lacks.
Dell plans to leave Alienware as a separate, semi-autonomous division, with license to keep extending its cool designs. What Dell will, take over is the logistical operations, something at which it is one of the best in the world. It will also use its financing arm to help buyers use credit for their purchases. As the WSJ article notes "These dull, critical things are what Dell does best."
But Dell has to watch out about contaminating brands. Just as Kraft isn't anxious to let its vegetarian customers know that it makes Boca Burgers and as Unilever isn't anxious that consumers see Ben & Jerry's ice cream as just another product from business-as-usual multinational. Dell will want to keep the brands quite separate. That's a point made in an article ("Dell Plans Alienware Invasion", 3/23/06) on the Motley Fool site:
Alienware is valuable to Dell as long as the consumer sees it as an entirely separate entity. Dell may be able to apply its operating prowess to make the Alienware machines more cost-effective and market them to a wider audience, but it better make sure it doesn't leave any incriminating fingerprints behind. Consumers will notice, and the edgy brand will quickly feel awfully
