Jan. 05, 2004 PC makers turn to electronics
FACEOFF: SHOW IN VEGAS TO HIGHLIGHT GROWING TREND
By Sam Diaz and Dean Takahashi
Mercury News
Alvin Eskridge is impressed with the consumer electronics lineup that Gateway, the PC maker, is stamping its name on -- from MP3 players and digital cameras to DVD recorders and plasma TVs.
But he probably wouldn't buy one of those gadgets from Gateway -- or Hewlett-Packard or Dell for that matter.
``I know Sony has a reputation for reliable products,'' said Eskridge, 45, a San Jose test engineer visiting the Gateway Country store on Blossom Hill Road. ``I would choose Sony on reputation alone. I don't think the others have a reputation in that field.''
With PC sales to businesses flat and the PC turning into more of a home media center, traditional computer makers are putting their brand names on products that connect to the computer.
That has turned the already crowded consumer electronics business, a $175 billion market, into a free-for-all. The showdown comes this week in Las Vegas at the annual Consumer Electronics Show, a four-day hoopla where tech companies such as Dell and Microsoft will face off with traditional electronics companies such as Pioneer and Motorola. Dell in particular will have a much larger presence than in past years.
The challenge for the PC makers is to leverage their brand-name cachet beyond the computer. Can they convince the industry -- as well as customers like Eskridge -- that they're worthy of competing in the consumer electronics market?
Last month, Gateway exceeded its pledge to add 50 new consumer electronics products over 15 categories before the new year. Over the summer, Dell introduced the Music DJ, a hard-drive player that rivals Apple's popular iPod -- and sells for about $100 less. HP, already making a name for itself on the digital camera aisle, is on the verge of introducing its own line of TV monitors.
Compatibility
According to a December survey of 500 Americans, 47 percent of consumers would consider buying from one of the PC makers if it meant better compatibility between the computer and a new gadget such as a digital camera or MP3 player.
But consumers still aren't seeing the PC makers as reputable for bigger-ticket items. The survey, by InsightExpress, a Connecticut online market research firm, found that only 17 percent would turn to one of them for a plasma TV and 28 percent would pick up one of their digital camcorders.
``The perception is, among people in general, that if they've purchased something that's going to be loosely tied to the PC, there's comfort in purchasing it from the same vendor because it feels like it's going to work well together,'' said Doug Adams, director of marketing for InsightExpress.
Adds Chris Morgan, HP's vice president of worldwide sales and marketing, ``Consumers don't want islands of technology that they have to manage in their homes.''
Consider that the latest trends in computing involve media center PCs and wireless home networks, that allow users to link the digital photos, music and video on their PCs to living-room home entertainment systems -- the TVs, digital video recorders, gaming devices and surround sound systems.
Sales of these living-room computers are steadily growing, despite the typical complaints that consumers don't want to see their TV sets crash. And Microsoft, and its longtime partner Intel, are doing the research and development to expand the reach of the PC, making it easier to use and able to work with displays and wireless gadgets that are spread throughout the home.
``The barrier that people perceived between consumer electronics and computers is breaking down,'' said John O'Rourke, senior director of consumer strategy at Microsoft. ``Things like digital cameras are a logical extension of the PC ecosystem.''
But PC makers moving into consumer electronics will do more than allow users to easily connect a digital camera or MP3 player to a PC. This shift is also about price slashing, introducing advanced technology to the masses and using the distribution methods that helped turn the personal computer from a big-ticket item into a low-price appliance for every home.
It's what the PC makers do.
``The computer makers are used to moving much more quickly than the consumer electronics companies,'' said Rob Enderle, an analyst at Enderle Group. ``That's going to put pressure on the consumer vendors to respond.''
Winning combination
In this battle of giants, the winner will hit the right combination of cost efficiency, clever product design, brand awareness and distribution.
``It's going to come down to design, brand and where consumers feel comfortable buying these things,'' said Rick Sharp, former CEO of Circuit City and a board member at Flextronics in San Jose.
But ultimately, consumers want to know that the products they buy are worth their money.
Russ Johnston, senior vice president of marketing for Pioneer's Home Entertainment division, said his company isn't competing with entry-level, bare-bones products -- the $30 DVD players that flooded the market during the holidays, for example. But it is offering quality products with a brand reputation that spans several generations.
Dropping several thousand dollars on a plasma TV is not a spontaneous transaction, he said.
``People are nervous about spending that kind of money,'' Johnston said. ``They're arming themselves with information before they walk into a retail store. There's confusion at retail, especially during the busy seasons.''
Gateway, as an example, is displaying a handful of plasma screens in its stores but is only showcasing its brand, he said. Shoppers there may be able to compare prices but they can't do side-by-side visual comparisons of the picture quality and other features that a Pioneer screen might offer.
Still, Manuel Jackson, a laid-off mechanical designer from Livermore, said he would have no problem buying from Gateway or the others.
``I know manufacturing,'' he said. ``If you've got good components, anyone can manufacture. Just because it has a lower price doesn't mean it's less of a product. It means they were able to manufacture it cheaper.''
But can brand names simply expand across multiple categories and expect customers to accept them?
``No, they can't,'' said Microsoft's O'Rourke. ``Nike has gone from running shoes to clothing as an extension of the lifestyle brand that they have. If they were to get into televisions, that might be a stretch.''
And what happens when the playing field gets too crowded?
``There will be a great consolidation,'' said Peter Weedfald, senior vice president of strategic marketing at Samsung. ``Who needs 15 makes of TV sets?''
That's something for the consumer to ultimately decide, said Gary Shapiro, president and chief executive of the Consumer Electronics Association.
``In the history of consumer electronics, there's always been intense competition,'' he said. ``Gateway and Dell and HP bring something different to the game. It's a tough business, but they have great names and great methods of distribution.''
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