System builders in the gamer PC space face several competitive challenges while they focus on differentiation and building increasingly complex systems. Here's what they're doing to stay ahead of the game.
Kelt Reeves, CEO of custom PC company Falcon Northwest Computer Systems, Medford, Ore., inhabits a business world ruled by solid-state drives, liquid cooling and the occasional odd request from a client. For many customers, what's painted on the outside of the PC is as important as what's packaged inside. He remembers one client who asked the paint color to match precisely the hue of a Playboy model's shirt on the cover of the April 1990 issue. Past requests have included faux stone finishes, airbrushed flames and renderings of pop icons. "It's very expensive, and sometimes frustrating, but it's always fascinating," Reeves said. "As long as they're happy, I'm happy."
That level of customization, he says, is just another day in his life as a system builder in the gamer PC space. While Falcon Northwest caters to a higher-level customer than other system builders, a dedication to quality and customer attention is held in equal regard across the market. But these days, Reeves pointed out, increased price competition and top-notch customer support present challenges that innovative paint jobs alone cannot surmount. While the industry doesn't always agree about which trends to follow or the best way to drive growth, many believe audience expansion is key.
Spreading The Gospel
It's a sentiment shared by many others in the gamer PC sector of the system-builder industry, who see a niche market in need of expansion outside what's considered the normal gamer demographic. "The gamer is now changing in what they use the computer for," said Velocity Micro Inc. President and CEO Randy Copeland.
Copeland started Richmond, Va.-based Velocity Micro out of his home a decade ago. He's seen his business grow to 100 employees, while watching the market for high-performance PCs expand beyond the core gamer.
"Consumers who use their home PCs as media centers as well as gaming machines are demanding faster processing speeds and the ability to play high-definition content. Customers whose work involves video or photo editing and graphic design also require more processing power and reliable hardware infrastructure," he said. "The digital lifestyle is starting to take hold more. While there's a lot more price competition, people are now aware of why they need higher-performance PCs."
Video-editing programs, high-definition video files and storage capacity for large volumes of digital media often influence a buyer who previously would only have been concerned with systems capable of playing cutting-edge games. He says he expects that trend to continue in 2008, as the concept of the "digital media center PC" gains traction. "People are using them for more than just gaming," he said.
Frank Azor, senior vice president of Alienware, bought by computer giant Dell Inc. in March 2006, gives credit for expanding audiences to the system builders as well. "Gaming is a niche market that has grown, thanks to the gamer system builders who have been going out and promoting it," he said. Other game markets have helped contribute to system builders' success, as well. "Console systems have helped, too, with cross-platform titles."
Two things system builders said are of paramount importance are attention to detail, and customer service and support. "You can't cater to that audience unless you have those two qualities," Azor said. "I would say that it's essential." That includes maintaining the highest standards for packaging and construction, as well as providing a highly educated group of individuals ready to respond to technical issues. "The craftsmanship and the availability of quality tech support are the two major things," Copeland said. "That's still how we live."
AVADirect Inc. President Alex Sonis said his Twinsburg, Ohio-based company offers quality assurances by testing every single computer it ships and providing custom packaging for the assembled system. "Basically, it's hand-delivered. For a system that's pretty expensive, it will be delivered hand to hand," he said. "It goes from our dock directly to the end user's home." Sonis said his company's approach to detail starts with the customer selecting from 300 cases, ever-available motherboards and six brands of memory and hard drives. "It makes our job really complicated, but we're doing it on purpose, because it separates us from the competition and allows us to be more flexible," he said. "The customer can put together anything they want with us."
Next: Custom Look
AVADirect now offers an even higher level of customization at the skin-deep level. "We're getting more and more people who are into the custom look of the computer," Sonis said. "They want special cooling fans, special colors. The looks of the computer are becoming more important." He said Alienware's acquisition actually made it easier for AVADirect to compete, because clients couldn't trust Dell. "They became too big; there's no personal customer service," he claims. "Most of all, it's the price—they charge a lot for what we call 'air.' " Sonis said the competitive challenge stems from Dell's name recognition. "The challenge we have here is the publicity problem."
Velocity Micro, which began selling its gamer PCs in Best Buy retail stores in August 2005 and recently began hitting Circuit City's shelves, will see the marketing budget pass a million dollars for the first time in 2008. "Having the credibility to go up against the big guys is the biggest hurdle we have to fight," Copeland said. "We've won more editor's choice awards over the years other than Dell, but we still have to reach out to the mainstream customers who don't know who we are."
Copeland, who said his company's niche is in the $2,400 range but sells a good number of $5,000 to $7,000 systems, sees the median price as "pretty rock solid" but notes competition in that space has increased. "These days, for us our midrange systems are probably growing the fastest," he said. "That's really becoming the battleground." He said Velocity Micro recently branched out into monitors, offering a 22-inch flat-screen for $349. "We wanted to capture business that would have gone elsewhere for monitors," he said.
For system builders, who in many cases rely on competitions and tests in magazines, dedication to customer service is a crucial weapon for survival. "It's just intense," Falcon Northwest's Reeves said. "It really just comes down to a company's reputation for service." Falcon Northwest stopped active marketing two years ago and Reeves said it relies on word-of-mouth and its reputation for quality high-end gamer PCs. "It's one thing to sell a $15,000 system, it's another thing to have people in place who can support something that complex," he said.
Jon Bach, who founded Puget Systems, based in Kent, Wash., said customer service and support is tied to the company's dedication to small-business values. "One of our core commitments is service level," he said. "Service is the way you get that across to the end user." In a highly discerning and highly competitive space, offering a unique customer experience can be an important advantage. "We work really hard not to be your typical salesperson—we're advocates for the customer," he said. "We listen to the requirements of the user, and try to figure out how gaming fits into his life, and really try to come up with a tailored system for them."
Bach, whose company consists of 25 employees and which sells about 125 custom units a month, said specialization and a better understanding of the customer base have been important to survival. The specific niche Puget has begun catering to is quiet computers, a feature that appeals to those outside the traditional gamer demographic, he said.
"For the most part, we've found there's not a person out there complaining about a computer being too quiet," he said. Because it costs between $30 and $40 per computer to reduce the noise levels, Bach said it was a natural feature to include and offered a way of differentiating Puget from the competition. "It just comes down to intelligent part selection," he said. "Enthusiasts are not only demanding performance but also demanding lower levels of noise."
The company had also considered branching out into gamer laptops and case-painting options, but decided the laptop niche dredged up too many issues in customization and stability. "We just had so many overheating issues," he said. "There are only so many choices we're provided with." Bach says he considers extreme case paint "too far into the hype category" for his liking, but admitted that in this highly competitive market, outrageous exterior customization can be an advertising asset. "I do recognize the marketing component for doing those things," he said. "It's the kind of thing that gets you noticed."
Next: To Each His Own
To Each His Own
What might work for one system builder does not necessarily work for another, and vice versa. Just as Puget decided to move away from custom laptops, AVADirect's laptop sales are on the rise, and Sonis said they're planning on more aggressively going after that gamer notebook market in 2008. However, Sonis admits the level of customization is limited.
"With laptops, it's kind of hard to be that custom because of the form factor," he said. "On the PC market, there's new brands, new speeds you can play with, but with notebooks lots of things are limited because of the size."
Reeves agreed, pointing out most notebook modifications deal with aesthetics. "Pretty much unless you're Dell or HP, you can't dictate everything you want in those notebooks," he said. "A couple of years ago, people saw this gold [mine], but companies who jumped into it found out the high cost of support."
On the software side, Microsoft's closely watched (and highly criticized) Vista operating system has not been the bane of system builders as some had feared. "XP was, at first, superior, but Vista has caught up to it," Copeland said. "Vista has been a boon for us because it's very stable and it's much better at fixing itself than XP ever was, so it's helped us on the tech support side."
The outlook for 2008 is mixed. Reeves said Falcon Northwest, whose average selling price for a custom PC is $5,000, is pretty well-insulated from U.S. economic woes and falling consumer confidence levels. "We've been around for 16 years now, so we've seen the good times and the bad times," he said. "Our market is a little more recession-proof."
AVADirect's Sonis, who hopes to hire additional employees on the gamer side of the business and continue strengthening certification standards for his technicians, said branching out into educational and government institutions can offset any slump in the gamer side of the business. Sonis said he is counting on word-of-mouth to bring in new customers"even if there are fewer people spending money on custom gamer PCs.
Alienware's Azor admitted that a declining economy has the potential to reduce consumer purchases of luxury items, and said it will certainly present some challenges for Alienware, though no major shifts in strategy are expected. "Challenging times like these are motivation for us to work harder toward delivering exceptional products and customer experiences," he said.
Turning to overseas markets could offset a decline in consumer electronic spending this year, but it comes with its own set of complications. Reeves said high import tariffs in Canada, which can reach as high as 30 percent in some provinces, effectively shut it out of that market. One unexpected trend, he noted, has been several large orders placed by customers from India. "They specifically told us that the dollar is so weak they can now afford the systems that they want," he said. "The ironic part being, those guys are probably in a great position to offer tech support."
Copeland said Velocity Micro currently ships to Europe and less frequently to Asia, but notes the market in Dubai and the United Arab Emirates is healthy. "We're actively involved in growing our foreign market," he said. "But we don't want to expand into a market unless we have the tech support in that language." Once again, the issue comes down to providing quality support for all customers, no matter where they are located.
Copeland said the most important advice he wished he had received when starting out would also apply to system builders facing an uncertain economy in 2008: "Stay liquid," Copeland said. "Liquidity is the key in this business." To survive, a company leader must ensure that cash is on hand to do what needs to be done tomorrow.
"That," he added with a laugh, "and it helps to be crazy."