The Odd Couple? . . .

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This week, Dell decided to buy Alienware. Some people were rather shocked by this.

Maybe the best way to answer why this happened is with a question, “Would Michael Dell rather sell X for $2,000, or $3,000?”

For whatever reasons, good or bad, some people are willing to lay out a lot more money for Alienware boxes than, say, Dell XPS boxes. It’s an established luxury brand.

On the other hand, not too many people are willing to lay out a lot more for those boxes, about 85,000 a year (a few less than Dell sells on the average day).

So Dell has bought itself a luxury toy, and, rest assured, all disclaimers aside, it will eventually play with it. Dell can play with Alienware in a bunch of ways.

At the least, Dell ought to be able to get hardware for Alienware at lower prices than Alienware (or its competitors) can alone (and probably assemble them more cheaply, too). If you were a business, wouldn’t you like Walmart buying for you? It’s likely Dell could pull the neat trick of lowering prices AND increasing profits

Dell could learn from Alienware to bolster sales (and prices) on its lines, or simply shut XPS down and turn Alienware into its luxury brand.

Will They Break It?

Probably. Ideally, Dell should consider itself a power pack to Alienware, letting them take advantage of Dell’s economies of scale, but otherwise leaving them alone.

How likely is that to happen? Not very. Why? If you were an ambitious Dell executive, wouldn’t you want to add this act to your resume?

And once you got there, well, what have you been doing ever since you became important at Dell? You’ve been cutting costs. Just what do you think you’re going to do if you get to what looks like a fat, bloated system and you need to make a big hit in a year or two to add to your resume before you get back to the real executive competition at Round Rock? Why, you cut costs and increase profits.

And, eventually, one or more of these ambitious Dell executives will cut out the reasons why people were willing to pay more for Alienware. Instead of maximum bang, you start thinking “bang for the buck” and start cutting down on R&D. Maybe you cut out customer support and let the Dell CS people handle it.

All these cuts will no doubt improve efficiency in ways the Dell culture is ingrained to approve, but they’ll also let the blue smoke out, too.

If I were the Alienware people, I’d keep the Dell people out of my managerial and executive spots at gunpoint, because once they start seeping in with their Dellness, that will be the beginning of the end.

This is like Walmart buying Tiffany’s.

Ed


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