|Alienware CEO Nelson Gonzales Chats With IGN
A candid conversation about the Dell acquisition, the future of PC gaming, new products, next-gen consoles, and more!
by Gerry Block - March 31, 2006
IGN: Thanks very much for taking the time to chat with us!
Nelson Gonzales: No problem.
IGN: So, the Dell acquisition is the big news. How's everything going so far?
Nelson Gonzales: So far so good. We can't complain. It's been a long while in the making and the transition is going really, really well; the little transition that is going on. The very nice thing about this whole deal is the fact that, and I've talked about this many times, is the fact that they are pretty much leaving us alone. We're going to be able to leverage the things that we don't do very well, like supply chain and some of the other operational things in the business that we just can't scale so well, and hopefully that'll pan out and translate to better products, better services, and better prices for all of our customers.
IGN: That's great. As I'm sure you're aware, the great concern among the fans is that Alienware holds onto what makes it special and that Dell stays in their area.
Nelson Gonzales: Exactly. That's very important, and I understand that, and so does Michael [Dell], we spoke about this at length. Both of us were very adamant that, hey, we need to preserve the brand and its identity. We've been doing that. We've been speaking to their folks, they have their product folks, and we have our product folks. Basically, they have their people and we have our people. So, even though we're part of Dell, as a wholly owned subsidiary, we're going to be very autonomous, and that's the most important thing. It doesn't serve anybody, especially Dell, to acquire a company that does $200 million in sales, and just assimilating those sales under their own umbrella, because that isn't going to move anybody's needle, at least Dell's anyway. So the idea here was to nurture the brand, to help us in the things that we need help in, so we can take it to the next level a bit quicker. That was the intention all along.
IGN: With that point in mind, and regarding Mark Vena's comments that "some" Alienware executives have signed multi-year contracts to allow for a smooth transition, what kind of assurance can we have that Dell's skills with efficiency won't lead them to try to eliminate redundancies between the companies in the future.
Nelson Gonzales: You know, that's an interesting question. The answer for now is absolutely no. But in the future, that may happen. What you've got to understand, and this is what I explain to people, typically, a company such as ours that started with 2 people, and has grown to 750 people worldwide…with growth like that, it's going to translate into more jobs. Now, our supply chain, for example, is something that we're not very good at, and we admit that. We're probably not going to continue to expand our supply chain operations, because we can leverage Dell's. So that's something that if there were people in those positions, they're going to be easily moved into other parts of the business. There's still a lot of coordination that has to take place. You know, we're talking about potentially eliminating supply chain. The coordination, all the liaisons that are necessary to make sure it runs smoothly, will continue: there's always going to be a presence of people that are tackling these issues. There's other ones, like financing. We're not very good at financing, we use a third party vendor for financing, and it's very, unfortunately, antiquated. We process loans and credit applications in 12 days when it takes Dell 5 minutes. And that's mostly what we're talking about. We have some areas with like four or five people dedicated to them, but it really isn't a huge deal. So this is something that we were naturally going to grow into ourselves, but now we can just leverage Dell's departments.
IGN: With regard to the efficiencies that Dell brings to the table, will the savings be reflected in the final price presented to the consumers in the future?
Nelson Gonzales: Most definitely. Most definitely. We've always been associated with being very expensive, and the fact is that we're very competitively priced at the high-end, even against Dell. So if you buy a $4,000 system from us, you're going to see that our $4,000 system is very similar to their $4,000 system if you look at the components. But, when you go down to $1,500, or something we've tried in the past, which has been unsuccessful, when we go to $899 or a thousand dollars, we're just not very competitive. And the reason for that is the issue of leveraging the supply chain. We don't deal with a lot of low-end parts. What happens is that anybody, for example, Dell or HP, that does a lot of value components, is always going to beat us on price. So we've never been very competitively priced with those SKUs. So, ultimately, what this means is that if we wanted to develop a SKU, we could leverage their supply chain and their price structure, and be able to come out with something very similarly priced to them, even at the low end.
IGN: On that issue, with regard to the now similar supply chains, where will the ongoing competition between Dell's XPS and Alienware's systems take place?
Nelson Gonzales: Well, we've always competed against them, and we're going to continue to compete against them. They have their product breadth and we have our product breadth. Ours is, I would say, very different than theirs. We have AMD and they don't have AMD. The other part of that is that even though there is some overlap among our customers, truthfully, their customers are different than ours. It almost seems like, even though we're competing against each other, the overlap is so small, that it doesn't really do anything for either one of our groups. We have our customers, they have their customers. We're growing, they're growing. So, as long as that's happening, everything is fine. If we end up eventually targeting the same customer, we're going to be going head to head.
IGN: On that point, with regard to the future of Dell's XPS, I was at the little lunch at CES where Michal Dell gave the first look at the XPS 600 Renegade. He certainly seemed really involved in the project, really, really enthusiastic about gaming. We've also heard that he was one of the major forces behind bringing Alienware under the Dell umbrella. As far as his vision and power together, will his approach to PC gaming have a serious effect on what Alienware can and can't do?
Nelson Gonzales: Well, Michael is very influential in any segment. You know, when Michael says he's going to do something in this market, that's a pretty big individual (laughs). In other words, he's going to impact whatever he does. So, when they got into gaming three years ago, frankly, we were a little concerned. You know, Dell's getting into it and what does this mean for us? But what happened was that it brought the visibility of gaming up quite a bit, and our sales took off. So I think the more visibility that Michael gives the PC gaming industry, the better it is for all of us. So, I think it's actually a good thing that Michael is very involved. And he is very involved. He's very serious about this base, and he's very committed to it. I've always been committed to it, so I think with that combination we're pretty good. The result will be more new products coming out, better pricing, all the things that should break open this whole market. The sky's the limit, I really do think so.
IGN: Alienware's yearly sales are quite impressive at $172 million, but that's still pretty small compared to the $55.9 billion that Dell rakes in. That's a big company taking a lot of interest in a niche market. A hard-nosed business school interpretation of Dell's motivation to buy Alienware suggests that Dell hopes to be able to combine Alienware's reputation and Dell's efficiencies to become a cost-leader and effectively squeeze the other gaming PC manufactures out and establish a real hold on the market. Is that what we're looking at?
Nelson Gonzales: I'll be honest with you: of course that's part of it. The intention here is to expand. And part of that is enabling us, through operational efficiencies, to be able to do that. So I think that the answer is yes. But at the same time, I don't know about the cost-leading thing. You know, we're never going to have a chassis that is designed for efficiency's sake. And that's the difference between us and Dell. We're going to have chassis that are designed for gamers, with functionality for gaming. And also the industrial design of it will override any manufacturing efficiencies that, say, a typical Dimension desktop would have. We're going to design things for the sake of the product, not so much for the sake of efficiency. I don't know if that directly results into cost-leader. That's more of a place for them than for us. What we're really good at is selling $3,000 machines. Now, what's happening is that, hey, if we help these guys, they could sell a lot more $3,000 machines. That's because there are a lot of people interested, but there's this perception of us as being a lot more expensive. There are also a lot of people doing it themselves. What we want to do is come in and say, here's our value proposition: We're putting together a system that's reasonably priced, and also full of everything you need for gaming, a turnkey solution.
IGN: Dell finally released the XPS 600 Renegade a few days ago and sold out pretty quickly. With regard to the apparent success of the XPS 600 Renegade, will we be seeing similar limited edition offerings from Alienware?
Nelson Gonzales: Well, you know, we started the ALX brand two years ago. [The XPS 600 Renegade] is basically their version of our ALX. So we've pretty much done that. We sell a limited amount of ALX systems, I believe it's 200 units a month. So we've been doing that for quite some time. And we've been very successful with it. I think the XPS 600 Renegade was more of a technology showcase than something else. Obviously, you can't scale quad-SLI with a custom paint job and Michal's signature (laughs). It's very tough to scale. So these are just limited edition runs that are really meant to showcase technology. With us, it's a little more of a revenue play. So to answer your question, we've been doing it for a while, and we've been very successful with it.
IGN: With respect to the quad-SLI issue, should we expect to see Alienware taking advantage of the Dell relationship to offer a re-branded 30'' LCD?
Nelson Gonzales: That's a great question actually, because Dell is the leader of glass in the world. They have the biggest market segment share in the world. The answer is probably yes. We may use their glass and their controller, but the tooling will be completely different. I would almost guarantee you that at some point, especially with monitors, we'll be doing something together. Even before the deal, actually, we were speaking to them about possibly carrying their monitors, because they have a great lineup. And to be honest, we're selling NECs, Samsungs, BenQs, we really don't care since we don't have an OEM monitor, and before we could carry Dell monitors and it wouldn't have made any difference to us. So, I would say the answer is yes, at some time in the future we'll probably leverage their glass, but you're not going to be able to see that it's a Dell. It'll be an Alienware product.
IGN: We were just up at GDC where we got a good look at AGEIA's PhysX PPU. We know that Alienware was their first official hardware partner. What are your thoughts about it?
Nelson Gonzales: I think it's a very sexy technology. It's been in the works for quite some time. Anything that can advance the gameplay is A-OK for me. The whole thing with me, since I started this company, is how do we get the customer immersed into this environment. If it's more fluid graphics, better sounds, better interaction, that adds to the complete experience. Ultimately, whatever enhances that is something that we are going to endorse. I think it's a great product that has a lot of potential and hopefully developers are going to start adopting the technology a bit more. The sky's the limit.
IGN: Yeah, I liked it too.
Nelson Gonzales: I mean, one thing I used to be into, that didn't really take off, for health reasons more than anything else, was stereoscopic displays. But I remember running Quake 2 on 3D stereoscopic displays. Quake had OpenGL drivers with stereoscopic support, and it was something special. So, again, anything that can enhance the gameplay, most likely we're going to back it up completely.
IGN: What do you think of the PC gaming world in relation to the launch of next-gen consoles? Back in the day, gaming systems were pretty close to PC performance when they were brand new, and then got outdated quickly once the PC moved on. Obviously this isn't the case anymore with quad-GPUs and such. Is that a good thing for PCs? A bad thing for consoles? What are your thoughts?
Nelson Gonzales: You know, I think there's always been consoles and there's always been PCs. When Alex and I opened the business, consoles existed back then, and they exist today. I think the products are complimentary. Every time a new console comes out, people will say, oh, it's the death of PC gaming. But that isn't the case. The install base for PCs is huge, and one cannot ignore all those PCs out there. What I would love to see is a little more development. What concerns me a little bit is that I don't see as many titles coming out as I used to. Especially simulation. There aren't a lot of simulations. Maybe I'm just getting old, but Alex and I are really into flight-sims, and there aren't enough of those being developed out there.
In the end, I think it's a complimentary thing. I think that it's one thing to play on a console, and get some buddies together and do a little bit of Fight Night. It's another to get on a PC and play F.E.A.R. or some Dungeons & Dragons. It's a different kind of gameplay all together. I really think that one is not going to….unless, unless developers start getting gobbled up, by these companies such as like Microsoft and Sony and whatnot, that might create an issue. But I don't see it as much of a threat.
IGN: Gaming laptops have been an enigma for years due to their high-price but limited upgradeablity. Interchangeable graphics cards seemed like a good solution, but the momentum never really developed. I know Alienware was into it years ago, but it seems to have gone away. Will we be seeing it ever again? What's the future of gaming laptops looking like?
Nelson Gonzales: I would love to introduce [laptop GPU upgrades] again. The problem is really the OEM support. It's just an extremely complex thing. There are a lot of engineering problems associated with it. The other part is standardization. I don't know if you're aware of this, but there's an XM standard now that NVIDIA introduced. It's basically NVIDIA, ATI, and Intel's integrated graphics. The problem that we face isn't something that we don't want to do, it's that we need standardization more so than anything else.
We attempted it, it seemed to have got some traction, but then as ATI and NVIDIA started competing with each other more and more in that space, it became much more challenging to keep up with both of them. And if you're going to do interchangeable graphics, ideally you want to do it like a desktop where you can put in an ATI or NVIDIA or Intel or whatever is available out there. And that isn't the case right now. Until there's a standard, and we would love to be a part of the standard, and we'll certainly endorse the standard, it's going to be very, very difficult for us to introduce that product again.
In terms of gaming notebooks, we were the first guys, really, to introduce gaming notebooks. We waited a long time because we wanted great graphics. We had a set of requirements, and we said, you know what? Our customer isn't going to care too much about weight. What they will care about is graphics and portability. Battery life, it's nice if we have it, but truthfully, these units are made to be carried around and plugged in. You're going to be pulling a lot of watts there, and you'll be producing quite a lot of heat. So the unit has to be big just because of those characteristics. It's been very successful, and I think that what gaming notebooks have done is make LAN parties a lot easier. I mean, you used to have to lug around your monitor, and that could be like 40 pounds, your desktop PC, that's another 20 pounds, your keyboard, mouse…now, you've got a turnkey solution that you can just plug in and you're up and running. They have 17 inch screens, and in the future maybe even a 19 inch, and you've got SLI graphics and desktop processors. It's crazy. We see desktop share dwindling every year, and more and more gamers are adopting notebooks, just because it makes sense. I'm one of those gamers that is mostly desktop, but I game mostly at home. There's a lot of people that play a lot of LAN games and there's a lot of people that travel, so I think it's very, very practical. I have one myself. I think it's here to stay. And it's almost completely accepted at this point even by the largest OEMs. That's a good thing. You know, the gaming guys have basically introduced it. We did it first and then everyone else followed suit. I'm very happy it got such traction.
IGN: Just a couple more questions! For the people that care, Media Center PCs are pretty cool. In some ways it seems like the concept hasn't quite hit the mainstream, however. At this point, they take a fair amount of knowledge and effort to set up and get running properly. What do you see as the future of Media Center PCs?
Nelson Gonzales: It's a big challenge and I think you hit the nail on the head. These things are beautiful, I mean, the horizontal form factor makes a lot of sense because you put them in an entertainment center or rack, but it's difficult because it needs to integrate with a remote control, it needs to integrate with other components in your house. And that's not something that can be easily done. So many different components, so many different variables, it's very hard for this thing to be sold as-is, to be a plug and play type of thing. I think you need expertise, somebody that comes in and maps out what your needs are, and based on that says, you're going to need a Media Center, you're probably going to need some sort of controller…You know, the way I think about it, it's a great attempt by Microsoft, I think it's a great product, I think it's getting more and more accepted.
My concern with this whole thing is the integration part of it. I think that right now, the home installers that set up these homes, they are beginning to embrace it and they're becoming more and more receptive to the fact that, yeah, I want to put a PC in this home to control media. But for now, you're still going to need somebody that goes in there and installs it for you.
As is, for a dorm room, for a bedroom scenario, or even for a living room it's going to be a stand alone unit, then it works well. But if you're going to integrate it with other components, it's still a bit challenging. We see a lot of future in it, but the question is, when is it going to be massively adopted? I think there's a lot of things still pending that surround it, that talk to content, that talk to broadband, that talk to integration, that still hinder its growth in the future. That's my position on it.
IGN: Any guess about just how many years it'll be before it really hits?
Nelson Gonzales: You know, that's a good question. We've talked about this for years. We talked about this in the 90s, we talked about convergence for quite some time. And it never took off. And I'm a little concerned that this time it's a little bit better and there's a lot more traction, but, it's not like you're seeing a lot of people adopting a horizontal form factor. You're not going to people's houses and seeing any of this. So I would say, you're probably looking at five years time. Again, that's just my look at the future, so take it with a grain of salt of course.
IGN: Last one: The highest-end of PC gaming gets most of the glamour, and these days you've got quad-SLI and dedicated PPUs and liquid cooling, making a top of the line rig push the $10k mark. Are you concerned at all about people buying, say, and $3k computer, which is still pretty expensive, and feeling disappointed that they haven't come close to the top end?
Nelson Gonzales: It was always this way though. When we opened the company, a company called Rendition had a video card out, and then NVIDA introduced their first GPU, the TNT. So if you remember, back in the day, and this is what we put in the systems, it was one 2D card, two Diamond 4-meg GPUs in SLI, and to make matters worse, we were also putting in a 16-bit sound card and a Diamond MX 300 in the system. So all together, you had five cards in this thing to make it run games fluidly. This was '97, 98. It's 2006 now, and guess what? We're going through that cycle again. You need four video cards, you need a physics processor…and I can understand the frustration, but I tell people, it's like anything else. I used to play paintball, and bought all that stuff. You can spend thousands on a bag of gold clubs. It's a hobby. Do you need this to play games? Not, not if you're a casual gamer. But if you're hardcore, you want to be playing on a 30 inch LCD. You want fluid frame rates at 1900x1200. Guess what? You're going to have to pay for it, and there's no way around it. To me, it's a great thing. We're pushing the envelope in technology, and what we're getting is an immersive environment. And that's the whole reason we started this company. To provide a turnkey solution for people that don't feel comfortable building their own machine and want fluid gaming performance.
This is all part of the cycle. It makes the system more expensive, but what you're getting is a pretty immersive environment. Graphics wise, we've come a long way from Wolfenstein (laughs). So, if we want to immerse ourselves more and more and more, it'll keep adding up and we'll pay more and more.
IGN: Great stuff! We can't thank you enough for the time! It was a pleasure speaking with you!
Nelson Gonzales: Likewise, take care!