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Dell Jacks Into the Digital Hub

Who's the most intriguing new entrant into the consumer-electronics field? It has to be Dell. This fall, the Round Rock (Tex.) PC giant jumped into the market with flat-panel TVs, iPod-like portable music players, and an online music service that lets consumers download songs for 99 cents a pop. Like Apple (AAPL), Gateway (GTW), and Hewlett-Packard (HPQ) before it, Dell (DELL) is hoping to do well with digital doodads and home-entertainment devices, which are selling faster -- and at higher margins -- than PCs.

So far, the strategy appears to be working. During the busy weekend after Thanksgiving, traffic to Dell's Web site jumped 20% vs. the year before, aided in part by interest in its new electronics products. As it has done in desktops, notebooks, servers, and storage, Dell is betting it can use its low costs, direct-sales method, and strong brand to steal market share from incumbent players. BusinessWeek Dallas Correspondent Andrew Park spoke with Dell Chief Marketing Officer Mike George about the plan. Here are edited excerpts from their conversation:

Q: What's Dell's strategy for tapping into the surging consumer-electronics segment, especially given all the new products already flooding the market?

A: As content -- whether it be photos, video, or music -- moves into the digital world, the perfect device for capturing, storing, manipulating, and distributing that content is the PC. The PC in turn sends that content out to other places [that] consumers want to access, whether that be a MP3 player, a TV, a printer, a handheld. We now view those almost as a part of our core business: How do we let people make full use out of the PC and realize the power of the PC as an entertainment hub?

Q: Are you seeing customers buy more than just add-ons to PCs?

A: We're seeing a lot of PC customers buy a 17-inch TV in place of a flat-panel monitor. [But] most of our 30-inch TVs are being sold independent of PCs, often to new customers. One of the things that isn't well-known is that we've had a very large and fast-growing software and peripherals business for several years now of products mostly sold separate from the PC. So this is not new for us.

Q: How much can you lower prices in these categories?

A: Our direct-sales model does in these businesses what it does in PCs, and we've deliberately chosen categories where that would be true. Take our 30-inch LCD TV, which is right now priced at $3,299. If you go to any of the major retailers or just look in the Sunday circulars, you'll find 30-inch LCDs TVs are typically over $4,000, sometimes as high as $5,000.

Q: The powerhouse consumer-electronics companies do a lot of slick product design and sexy marketing. How does Dell make customers take note of what it's doing?

A: We can keep up with anybody in design, but do it with our mind set. There's no question there's a competitor in [music players] that does great marketing and has a great reputation for design. We're not trying to be as esoteric in our design as the other guy.

More important than that, we've gotten great reviews for innovating around the user interface. I had never used a music player, but within a minute [of using Dell's] I got it, because it uses the same visual cues as I learned in navigating the Internet.

We did a lot of customer research and found there was a growing rebellion among customers of the leading brand about short battery life. You had to carry a charger with you, and the battery itself tended to die.... We put double the battery length in ours. It makes it a little bit thicker. I'll trade off an eighth of an inch of thickness to get double the battery life.

Q: Are you concerned about being outdone by another low-cost manufacturer like Apex or a low-cost distributor like Wal-Mart (WMT)?

A: We don't have the cost of brick and mortar. We don't have the cost of inventory, like the players you mentioned. We have the ability to be fluid, to work with multiple providers, multiple technology partners, so that we're never locked into one solution. We can always be reading the market, always be reacting in real time to our customer feedback. If we stay on our game, we can be successful in this business.

Q: Are consumers going to see Dell's advertising evolve to look more like Sony's (SNE), Samsung's, or Apple's?

A: We're not going to try to imitate either the messaging or the style of the other guys. In the past, we've told consumers that Dell is the easiest path between them and the PC that they need. Today, you'll see us talk more about Dell being the easiest path between them and the technology they need.

You'll see us advertising the music player in new places, like Rolling Stone or Vibe or Spin magazine, but it should still feel like a Dell ad. We've been thrilled and humbled by the success we've had with the brand in the consumer space over the last few years. There was recently a Forrester poll that listed Dell as the most trusted among 49 technology brands. We're trying to be judicious about what we do so we don't ever put that at risk, but it's certainly the cornerstone of our willingness to go into these new arenas.

Q: After BusinessWeek ran a cover story on Dell last month, we received many letters from consumers who complained of bad customer service from Dell. As you jump into consumer electronics, are you in danger of stretching yourselves too thin?

A: We have tried to be very focused for exactly that reason. We don't want to outrun our ability to provide great service and support. We view any customer-experience shortfall as a failure that we've got to go fix.

We know from our internal tracking that our service and support scores are vastly higher than the competition. We know from external sources like PC Magazine that generally speaking our service and support scores are better. But any failure is a miss.

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