Building high-performance, luxury computers in a recession
When the world is caught in a global economic downturn, exactly how does one build a business around the fabrication of high-performance, luxury computers?
I spoke with Chris Morley, chief technical officer of Maingear Computers, to find out. When it comes to external circumstances, Morley says success is all about working with the hand you're dealt -- and remembering to play your strengths.
ZDNet: How do you position luxury, high-performance electronics in economy? What's your strategy?
Chris Morley: Luxury goods have a flexible demand curve. Our ASPs (average selling prices) have actually shot up, and we've actually have had some pretty darn good months. This economy has taught us that we need to focus on our core competencies: focusing on the best experience and customer service that we can provide.
We are standing in a field with few others. Demand isn't going away, but companies that are playing this field are leaving, falling off, or just flat out giving up. While business was very good before this economic downturn, we're asking how can we increase our brand awareness, how we can expand.
The past year we have done very well with the ePhex, which is our Halo [desktop] product. Reviewers, I hope, will take note that a killer review really makes a difference. If you love their product, have nice things to say about it!
ZD: How do you balance expanding your business without alienating your core gaming community?
CM: [In terms of competition], the only people we need to worry about is Falcon Northwest. We're their only competition, which is great for us. But for every $10,000 review machine we send out, we may send five, ten, fifteen $5,000 systems. Our Halo products are very important to our sales, and they're going to drive more of the lesser-configured systems. We definitely find a halo effect with it.
We as much as possible want to get back to our enthusiast group. This economic downtown put a laser focus on putting an enthusiast mentality on a product that can actually be sold. We have re-engineered and repositioned our home theater PC. Online sales have started to dry up a bit [for our competitors].
Women drive technology purchases these days, period. I see it every day. Women want [home theater] soundbars and small subwoofers you can hide and flat panel LCDs. We're still overrepresented in the male population, but that's just the nature of the beast. I would love every opportunity to get in front of every woman who's playing World of Warcraft or Doom III or what have you. I'd be on that like white on rice. I don't see women going after the trashy bling with the lights and the dragon heads and all that. I'd like to think they want high-quality designs on a high-performance gaming PC.
When it comes down to a desktop computer, it's not important. But as soon as you start putting stuff in a living room, that's the end of that. That's the future -- 3D games from couch, using a lapboard with keyboard and mouse. That's where our Axess HD Gamer system comes into play.
Everything that we're doing, we're trying to maintain the high-performance, gaming roots.
ZD: It's a widely-known fact that margins on computers are razor-thin. How's the economic downturn affecting your margins as a boutique, custom computer company?
CM: Ever since you've been able to buy computer parts over the Internet, margins have been an issue. That's why we stay away from being a parts distributor with an integration fee.
Every support call and issue that comes up is dollars out of that profit margins. Are you willing to bend over backwards, or not? We're really pushing the service aspect. And you know what? Sometimes you won't get a cheaper system from Dell. Their base prices are pretty much their loss leaders, but prices go up incrementally as you go up.
Which companies have the balls to take care of their increasingly demanding customers through an economic downturn? The last thing we want is for customers to be frustrated by their computer. That can drive somebody over the edge.
ZD: You recently introduced a "green" gaming PC, the Pulse desktop. What other green initiatives are you looking into?
CM: We're going where things are flowing. Water flows downhill, and as long as we stay true to our enthusiast roots, we're going to be okay.
The green thing is new to us. We traditionally sell systems that are power-hungry. You can tie [the green trend] into the economy or people's concerns for the environment or lower-power products on the market.
This system [the Pulse] will pull, under load -- that's full-tail GPU and CPU boogie -- about 145 watts. A typical system would pull several hundred. We sell systems with 700- and 1,200-watt power systems. There is a lower-threshold for gaming PCs that we haven't been able to break through.
What are the power savings? A normal desktop costs $10 to $15 per month. A dual-core Atom system with Ion pulls in $1 per month, but that configuration doesn't match our enthusiast audience. Our Pulse is about $2.50 a month, versus $20 to $30 for a gaming PC where power and size is no concern.
There's the heat aspect and the money aspect [when it comes to savings]. You want to reduce your carbon footprint. We're not going to make you give up your guilty pleasure -- gaming -- to do it.
ZD: What project are you most excited about?
CM: We have some exciting stuff coming up. This is a big year for us. We're starting to slowly expand into marketplace selling -- Buy.com, Amazon.com. We recognize the quality behind these companies, and we're going to be sending them nothing but high-performance gaming PCs. We're not going to be selling $700 gaming systems. If we sell 25 percent of what our competitor sells, that's A-OK with us.
We really want to manage our growth. We don't want to add more junior people that our senior people can handle. We want to do it smart, we don't want to do it fast. We'll do it with long-tail products. We look forward to new components and Windows 7. We have a 13.3-in. and a 17-in. system right now, and we will be introducing a 15.4-in. system in the next two weeks. We're about to refresh the 17-in. system as well.
ZD: Laptops are a relatively new segment for Maingear, but they're quickly overtaking desktops as the preferred form factor. How hard is it to compete?
CM: It's hard to compete as a boutique in the laptop business. When you go about building a desktop gaming PC, you have a gazillion choices in components, everything down to the wires. In the laptop business, there are only a few ODMs (original design manufacturers) out there. It's the same parts that your competitors are going to use.
Why is the laptop market limited like that? It all comes down to tooling costs. Dell doesn't sit down and make its own stuff, but they pay someone else to do it, like Asus, and order 10,000 units. Just to get a custom A-panel, the quantities are in the thousands. As a boutique, that's impossible. What if the model becomes obsolete? It's impossible as a boutique to have economies of scale that ODMs do.
With white-label systems, I think MSI does a great job, but you basically still have to buy a shell. You don't get to customize the system physically. Look at Apple -- Apple's going to Asus for that. If I could afford to do what Apple's doing, I'd do a Macbook Pro. But we haven't been able to get out of the concept phase because it costs so much money to tool up. Even getting a custom chassis is so much easier than getting a custom laptop.
So what's a boutique to do? We're like a rock skipping across the water with the laptops. We may or may not get to the other side.
We have tried certain [laptop] models before that we think will fit. We sell a bunch, and then we get a call from a guy that says, "This laptop just doesn't feel like a Maingear." That's a tough thing to hear. We don't have a lot of control over the laptops.
By the way -- with that guy, we just gave him his money back and apologized. That was the only call we got, but our CEO called me up and was really distraught about it. We can't afford to let any customer sit out there and be unhappy. (Ed. note: Morley told me later that Maingear eventually canceled the line altogether.)
Sometimes we even get abused for how nice we are...but there's a reason you don't feed the bears in your backyard. You have to be able to fire your customer if they're sitting there and bleeding you dry. You can't make a customer happy who you know is fleecing you. What are you going to do, go out there and badmouth him back? That's just bad mojo.
At the end of the day, we're still a boutique. If I lose 10 customers at Maingear, I'll notice it.