Dell angles for the best seat in the living room

PC maker wants to be your supplier of high-end home electronics as well as installation services and, someday, movies.

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
7 min read
ROUND ROCK, Texas--Dell plans to continue expanding its stable of consumer electronics products and services throughout the rest of the year, looking to the gear to help it generate new customers and ultimately to sell more PCs.

The Round Rock, Texas, PC maker is introducing products and services ranging from a beefed-up Inspiron 9200 notebook with a 17-inch screen to new all-in-one printer models and a suite of in-home services designed to help consumers sort out home networks and living room electronics.

Dell isn't making radical changes. It will continue to follow its current modus operandi by offering products and services that work with its PCs and thus can help spur PC sales. It will, however, continue expanding its efforts in adjacent markets, including printers--an area that company executives admit Dell should have entered long ago--and digital televisions, which are similar to the LCD monitors the company has sold for years. Dell is also eyeing smart phones and digital cameras, although it may be some time before it makes a move in either area.

"We recently measured a few of our newer categories, such as music players and TVs. For those products, 52 percent are going to new customers," Mike George, general manager of Dell's consumer business, said in an interview with CNET News.com. "It would appear that those customers have a disproportionably high likelihood of then coming back to us and buying a PC. It's given us more confidence to be bolder in how we talk (in advertising) about our electronics."

Smart phones, which combine the attributes of a cellular phone and a PDA like Dell's Axim, represent a potential opportunity for Dell, executives say. But the company will carefully examine what it can do to differentiate its products from those of incumbents such as Nokia. Similarly, Dell executives note that digital camera sales are growing, but they say they're still examining whether a Dell-brand camera would meet the company's requirements for sales and profitability.

Part of the reluctance to go whole hog on consumer electronics is that, taken all together, the business generates only about 15 percent of Dell's revenue, Kevin Rollins, the company's CEO, told News.com.

"We're trying to stay very close to the PC. For the time being, I think printing and imaging...color, both inkjet and laser--that's really the big push," Rollins said. "My guess is we'll continue to broaden that product line out first, maybe (add) a few more televisions. We'll have to see on the handheld; convergence we don't believe has happened yet, so we don't believe that's a near-term product."

Dell's consumer electronics strategy is as follows:

Cell phones, notebooks and gadgets
Dell executives say that, although it might make sense for the company to offer a smart phone at some point in time, they're not planning to do so anytime soon. At the moment, the market isn't large enough, there's no standard for software, and working to qualify the phone for use with multiple network providers is still a fairly messy prospect, according to the executives.

"For (products such as players and TVs), 52 percent are going to new customers."
--Mike George, general manager, Dell's consumer business
"We watch that category very closely," said John Medica, general manager of Dell's desktop product group. But, he added, "we have bigger fish to fry."

"I think the opportunities are there," said Alex Gruzen, general manager of Dell's notebook product group. "The opportunities for us are as the technologies mature and as the networks roll out and the end users demand it and (their) education (or knowledge of the category) matures," he said. "There's not an upside for us to be first to market."

Dell doesn't plan to offer devices such as DVD players, either. There's little opportunity for profit in the high-volume, low-price electronics space, George said.

"We're not interested in lower-priced standalone devices like DVD players," he said.

Instead, Dell will continue to market Media Center multimedia PCs and sell its Axim handheld line, along with its Dell DJ music players. Dell recently rolled out a new line of Media Center desktops, launched the Axim X50 handheld and refreshed its Dell DJ line with two models, including the miniature Pocket DJ 5. The DJ 5, about the size of a deck of cards, will sell for $199 and come with 5GB of storage.

On the notebook front, Dell introduced on Tuesday its Inspiron 9200, a new notebook for consumers that offers a 17-inch display. The machine, with a list price that starts at $1,699, aims to attract buyers interested in using a notebook to watch movies or to manipulate multimedia files. The machine also comes with Wi-Fi, allowing it to connect to home networks and share files.

Services, software--and movies
Dell wants to provide its consumers with a menu of in-home services. The company is planning to offer to do jobs such as installing home networks for consumers in conjunction with a new suite of services that will allow customers to pay a set price for a certain job.

Under the program, a Dell representative will "pull up in the van and take care of your problem," George said.

Spyware problems now account for 20 percent of the company's support calls, so Dell plans to offer a security software bundle that will combine a firewall, antivirus and antispyware software, George said. The bundle is set to become available in November at no charge.

Dell is also eyeing a movie download service. The company has been exploring partnerships that would offer its customers access to movie downloads, similar to how it provides music downloads through a partnership with MusicMatch, George said.

"We're talking to a bunch of folks, watching how that market evolves, and we'll have something midterm to longer term," he said.

Dell recently announced plans to add two new 42-inch plasma-screen TV models to its television lineup and is likely to add a few more TV models over time, executives said. The PC maker, which aims to begin shipping the 42-inch systems in November, chose to offer them at low prices at the outset. The high-definition plasma TV will sell for $3,499, a relatively modest price that Dell believes will help boost demand.

"Can we get some of the 42-inch (plasma TV) products down below $1,000? I think the manufacturers just need the size, the volume and the time to do it."
--Kevin Rollins, CEO, Dell
Yet Dell's chief executive will maintain a relatively low expectation for the television line until its prices can drop even more.

"We'll see how it goes. I think the key success factor is not how many sizes" Dell can offer, Rollins said of the television business. Rather, he said, "I think: Can we get some of the 42-inch products down below $1,000? I think the manufacturers just need the size, the volume and the time to do it."

The main customer for Dell televisions may be consumers, but the company sees a potential audience among its business customers as well. A number of hotels, financial institutions, restaurant chains and even retailers have expressed interest in Dell televisions, said Steve Felice, general manager for Dell's corporate business group.

"The potential to sell lots and lots of TVs is there because of the chains that these companies have," Felice said. "Think of the potential of a company like McDonald's. There's tens of thousands of sites out there. So the potential is big."

Dell is in the second of what it believes will be three phases of development for its fledgling printer business. Phase two is a period of growth, in which, having introduced the printers, Dell aims to boost sales significantly by expanding the number of models it offers and the numbers of countries in which it markets them, said Tim Peters, general manager of Dell's imaging and printing business.

Since it launched the line in March 2003, Dell has shipped more than 2 million systems, Peters said, and has averaged introducing about one new model each month. Its next model will be the 962, a new high-end all-in-one inkjet printer, due next month. Peters said the printer will be easier to operate than some other models aimed at small offices or home offices. The company is also nearly ready to enter the Chinese market, he said.

During phase two, Dell will take most of the profits it makes on printers and reinvest them in the business by offering lower prices or bundling printers with its PCs, all with the idea of pumping up unit shipments. Phase three will arrive once Dell builds a large customer base, which would increase its sales of supplies such as ink, toner and paper.

Dell expects that its customers will be willing to pay a little extra to have printer supplies delivered to their door. But over time it also aims to lower its prices on supplies, Peters said.

"As you (grow a customer base) you can start to improve the value proposition. You can start to work down the cost per page, either through scale or through new technology," he said. When it comes to lowering ink or toner prices, "Over time we have an opportunity to do that."

Peters acknowledged that the company could have offered Dell-brand printers much earlier, and that if had done so, it would be better off now. But the company had other priorities, he said.

"We probably could have. We'd be in a better position today, competitively," Peters said. "But even in the last five years you've seen companies of substance...try to enter the market and the reason why they could not is because they had a barrier of entry called the reseller channel that was owned by others. If that's your only reach to market, it's gated."