P Cs: The Battle For The Home Front

Sick of Microsoft Corp.'s Windows 95 blitz? Tired of nonstop ads for multimedia this, online that? Bored by friends and associates who boast about their hot new Pentium PCs and the cool new Web sites they're finding on the Internet? Too bad. The fall personal computer season is just beginning, so between now and Jan. 1, the world's PC makers will be blanketing the mails, the airwaves, and newspapers and magazines with hundreds of millions of dollars' worth of messages aimed at getting some 3.6 million Americans--and 1.6 million Europeans--to buy new PCs.

The market for home PCs, which has been the hottest growth segment of the computer business for two years, is now a critically important battleground for PC makers. They rely increasingly on fourth-quarter sales to consumers to achieve their yearly numbers--and to make up for slow growth in their other markets. Compaq Computer Corp., the biggest PC maker of all, has built a $3 billion business in home computers from scratch since 1993, and companies from IBM and Digital Equipment to Hewlett-Packard are eager to do the same. That's what's behind a massive yearend push to get experienced PC owners to trade up and convince a wider swath of the public that it's time to bring the Information Age into their homes, too.

"PRETTY COOL." The season is already off to a roaring start. It began with the Aug. 24 introduction of Windows 95, prompting millions of PC owners to consider buying replacement machines, and continued with stronger-than-expected back-to-school sales. Says Edward R. Anderson, chief executive of Dallas retailer CompuCom Systems Inc.: "It was like a gun went off in mid-August, and sales picked up." In September, Compaq, IBM, Acer, Hewlett-Packard, and Dell Computer added more fuel with new consumer models featuring everything from special chips for running video to stylistic flourishes to make a PC look at home in your living room.

Will it work? Industry analysts are busy ratcheting up their fourth-quarter sales forecasts. They're now figuring shipments will jump as much as 30%, not just the 20%-plus surge they had predicted earlier (chart). PC factories are running on overtime. And television is beginning to groan under the weight of PC advertising. The message takes many forms, but there's a common theme: The PC is the all-purpose home-entertainment gadget, a stereo for pumping out the music of the latest compact disk, a video-game machine for Doom fanatics, and a cybercruiser for every member of the family.

For experienced PC users, it isn't such a hard sell. "This is a product whose abilities keep multiplying," says Andy Bose, vice-president at Link Resources Corp. This year, for example, one of the hottest-selling options on Gateway 2000 computers is a changer for stacking audio CDs. Such features helped persuade college freshman Chris R. McFarlen of Arlington, Tex., to plow $3,000--everything he could scrape together from a summer job at a phone company--into a Dell Computer Corp. 100-megahertz Pentium PC, with a CD player, graphics and sound cards, a 17-inch monitor, and an ultrafast 28,800-bit-per-second modem to cruise the Internet. "It's pretty cool," raves the Abilene Christian University student. "Any faster, and you start getting unstable."

The tricky part for PC makers will be generating that kind of enthusiasm among millions of new consumers. Until now, the market has largely been upper-income, white-collar families (most PC households have annual incomes exceeding $50,000). To reach this year's sales goals, the market has to broaden. Link Resources predicts nearly 17% of home- PC buyers in the next 12 months will be first-timers, compared with 10% in previous years. Forrester Research Inc. says the fastest-growing segment of buyers will be families earning from $25,000 to $50,000.

Reaching these new customers will require savvy consumer marketing skills. "Brand name matters more and more," says Digital Equipment Corp. Vice-President Howard Elias. That's one reason why IBM and Compaq this year tapped consumer marketing specialists to lead their home-PC pushes. Mass merchandisers are enthusiastically joining in, too--loading up on inventories of what has now become the hottest category in consumer electronics. Bradbury H. Anderson, president of electronics chain-store Best Buy Co., says PCs now account for 38% of the Minneapolis company's sales, up from 26% two years ago.

LESS TECHNOBABBLE. A bigger market also means providing a level of service that PC makers aren't accustomed to. "Support is weighted highly in terms of value," says Gateway 2000 Inc. marketing director Al Jiazzon. As Microsoft Corp. has already discovered with Win95, when you suddenly whisk neophytes into the disorienting world of computers and computerese, you have a lot of handholding to do. Despite painstaking preparations, Microsoft found phone lines flooded with 20,000 calls a day from Win95 buyers.

Apple Computer Inc., long the No.1 supplier of home PCs and now No.2 behind Packard-Bell Electronics Inc., is hoping to bounce back by de-emphasizing all the technobabble that can turn off new buyers. "It's not going to be with a PC-centric approach because these people aren't interested in learning about PCs," says Apple Chief Executive Michael Spindler. Apple has new, lower-cost Macintoshes and has added features such as one-button Internet access. It has special Mac packages for different types of consumers, and an Apple ad blitz will stress the Mac's simplicity.

Still, Apple could be in for a disappointing Christmas. Consumers may indeed respond to Apple's claims that Mac remains the easiest computer to use--and won't pose the kind of shake-down problems buyers may encounter with Win95. But the Cupertino (Calif.) computer company made a costly miscalculation: It underestimated, by as much as 40%, demand for certain key components and will be hard pressed to get enough machines onto store shelves this fall. Alan Bush, chief executive of Tandy Corp.'s Computer City chain, predicts that the shortage will cost Apple dearly. "I believe the top three selling brands will be Packard-Bell, Compaq, and HP," says Bush.

BEST BEHAVIOR. IBM could also find itself on thin ice. Retailers were burned last Christmas when Big Blue failed to ship sufficient numbers of its Aptiva PC line, and many consider IBM on probation: If it can't deliver hot-selling machines in sufficient quantities this season, they'll make room for other brands, such as NEC Technologies and HP. IBM seems to be on its best behavior. It brought out a new line of Aptivas on Sept. 11 and, to keep dealers happy, began shipping supplies a month in advance. To attract customers, it's buying ads on everything from Monday Night Football to Seinfeld and pushing features such as standard 28.8-baud modems (vs. the usual 14.4), new video capabilities, and "theater-quality" sound. "It's a great interactive gaming and learning experience," says Consumer Div. Marketing Vice-President Michael Parides, recently lured to IBM from Compaq.

Compaq, which introduced a new line of home PCs on Sept. 13, is pulling out the stops to grab the market lead from Packard-Bell Electronics Inc. It began attacking the home-market leader's credibility last spring by filing a suit claiming that the Westlake Village (Calif.) manufacturer fraudulently resold returned computers as new machines. Now, Compaq is launching a $40 million TV and print ad campaign touting higher-quality video and sound.

Compaq is lavishing more and more attention on the home market, which is growing two to three times as quickly as the business-PC market. It has set up a special laboratory where researchers observe consumers using prototype machines in various situations--an apartment, an office, and on an airplane. Compaq also is working with Mattel Inc.'s Fisher-Price to develop computers that resemble toys, for 4- to 7-year-olds. Michael Heil, a former Sony Corp. executive, who recently became senior vice-president of Compaq's new consumer division, says the company is also paying more attention to industrial design. He plans to consult with design leaders who influence everything from furniture to auto styles.

DO THE DISHES? Packard-Bell, meanwhile, is sticking to the strategy that gained it the leading share last year: Give consumers the most "stuff," says Mal D. Ransom, marketing vice-president. In addition to all the multimedia features of last year's models, Packard-Bell's fall line includes such goodies as a remote control that can turn on the CD, control volume, and retrieve phone messages from the PC. Packard-Bell also offers direct access to its own private-label Internet service.

New techno-gizmos and splashy features may not be what's needed to push PCs into a wider market, though. When it comes down to it, there's not much difference between one 100-MHz Pentium machine and another. PC makers, therefore, are seeking other ways to differentiate their wares. One is through software to insulate the neophyte user from some of the ugly realities of running a computer. Hewlett-Packard, new to the home market, throws in a program called Personal Page that rides on top of Windows 95 and lets customers organize their applications in groups represented by icons--for games, finance, and so on.

Another way to differentiate is to move beyond the standard putty-colored PC box. Acer America's new Aspire home-PC line, introduced on Sept. 5, for example, boasts a curvy design in decorator green and charcoal that "breaks the Model T mentality," says Acer President Ronald Chwang. Packard-Bell also has new shapes--a wedge for corner locations and a low-profile pizza-box computer. "We think style is a factor," says Packard-Bell's Ransom.

This is not to say that the features wars are over. Compaq, for example, will be trying to convince customers that the video in its new Presarios--produced with special video-processing chips--is superior to video on Packard- Bell machines, which rely on special software to compress and play back video data. IBM, on the other hand, uses a combination of software and hardware for video. The challenge, says Compaq product marketing director Mark N. Vena, is that "70% to 80% of our customers don't know what MPEG [video compression] is."

Whether or not consumers know---or care--how the sound and music got there, they love multimedia PCs. And Win95 represents a great leap forward in multimedia. That's what sold David J. Clark, a St. Paul (Minn.) security supervisor, on the new operating system. "I decided I wanted a play-toy, and now that I've got one, I spend most of my time on it," he says. The lure of multimedia also snagged Carolyn Jones, a Santa Clara (Calif.) administrative assistant who just bought a $2,000 Mitac PC "that's going to take me to the 21st century."

SHORTAGES. Between the upgraders and the newcomers to the market, the biggest concern among PC makers is keeping up with demand. "It's a great worry to have, isn't it?" says Dell Computer Corp. CEO Michael S. Dell. With demand unexpectedly high this season, there are industrywide shortages of components such as memory chips and disk drives. That is keeping prices firm. So are new features that are raising the average selling price of home models by as much as 2% to 5%, says PaineWebber Inc. computer analyst Michael Kwatinetz.

But how long can the party last? PC makers say the computer's ability to absorb more and more functions of other consumer-electronics devices will keep expanding the market and prompting upgrades. Yet the penetration rate--expected to hit nearly 50% of American homes by 1997--is going beyond the levels where sales of electric typewriters and video-game machines began to slow.

Researchers are predicting that the home-computer market will cool off, slowing to a 16% growth rate in 1996 and 12% in 1997. Bose of Link Resources figures that growth "will hit a wall when penetration gets to 65%." Then PC makers can achieve respectable growth by focusing their efforts overseas. "On a global basis, people say this is a device that will be important in their lives," Bose says. Indeed, market researcher Dataquest Inc. predicts that the home-PC market in Europe should jump 49% this year. In other words, the home-PC blitz will remain a high-tech holiday ritual for years to come.

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