GearBits

Consumer Electronics: New Fad or Strategic Shift?

Over the past few quarters, a huge number of computer companies have publicly announced their intentions to bust onto the consumer electronics (CE) scene. For example, Gateway wowed everyone when it announced it would selling (relatively) inexpensive plasma TVs and some other home-oriented non-computer devices. Those CE sales did a lot for Gateway's financial situation in the most recent quarter. Dell has announced that it will aggressively extend its product line into the family room, offering things like LCD TVs and other home electronics. Even Intel has recently announced it will create a business unit focused on consumer electronics.

These are all departures, to varying degrees, from the computing businesses that these companies have existed as so far. CNET News.com has an assessment that this move into CE by traditionally computing-oriented companies is fraught with risks...and I agree. In order to succeed, delivering home and consumer electronics is going to take a very different skillset than is required in the "beige box" and CPU business.

First of all, the majority of the computer industry competes primarily on cost and delivery -- these skills are all related to what you might call "supply chain management." In contrast, many consumer electronics products are as much about quality in some form, such as reliability or aesthetics, as they are about low cost. Granted, APEX has made a niche for itself by offering trailing-edge CE at bargain-basement prices, but they are still very much a marginal player at this point. Understanding what drives consumers to go ga-ga over a piece of electronics is not easy or trivial, and I have my doubts as to Dell or Intel's ability to get it right the first time...or maybe even the third time.

Second of all, you have to think about the distribution problems. Intel and Dell don't have huge presences in retail stores right now. Dell doesn't sell anything in stores, which is where a lot of people want to shop for expensive consumer electronics. Most people won't drop $2000 for a TV sight-unseen...I know I wouldn't. Establishing those relationships (for everyone except Dell) will take time, and Dell may want to rethink the direct-delivery strategy that has served it so well so far. CE is not like computers, and direct-delivery may turn out to be more of a liability than an asset in this new arena.

Sony is a good example of a company that has migrated from CE to computers and it has morphed designs for the two product types very successfully. For intel or Dell to do that, they'll need some serious outside help, for it's unlikely that anyone inside the companies currently has a good handle on designing consumer-oriented devices. Managing the distribution networks and matching them up with consumers' needs will take a lot of rethinking -- if their managers are unable or unwilling to be flexible enough to do that, I suspect these endeavors into the CE world will be albatrosses around these companies' financial necks, and short-lived for that main reason.