28-Dell Slips at the High End

Here is an interesting case. The gaming PC market has grown faster and to a far larger size than we see in most industries. The regular PC market is much less attractive as a place to compete. The PC gaming leaders do very well. Here is an explanation of how that has happened. And the hats off to Dell for a job well done.

Posted 6/12/08

Two years ago, Dell bought Alienware, the leader of the game-oriented personal computer business. Game-oriented PCs are the high-end of the market. They usually sell for several times the price of the average PC. A game-oriented PC is a Performance Leader product (see “Why Do Leaders Lead?” in the Tools/Perspectives section of StrategyStreet.com). In the computer hardware business, the differentiator at the high end of the market is Function. This Functionality includes both design and computing capability. If you have these two Function benefits, you can generate word-of-mouth among buyers and become a hot product.

Dell has slipped in this market. The Alienware products had to compete inside Dell with Dell’s original high-end line, called the XPS. The market has not been impressed.

There is not much surprise in this development. If a Standard Leader takes over a Performance Leader product, normally it adds value by maintaining good Functionality while reducing the Price. The Standard Leader creates a good Performance Leader value proposition by using its economies of scale to offer more Convenience at a lower Price, with Functions “good enough” to appeal to most of the Performance Leader customers. As an example, see Toyota’s Lexus product in the early 90s.

Most of the time the Standard Leader’s high-end (i.e., Performance Leader) product competes against smaller Performance Leader specialists, who offer somewhat more Functionality but at a much higher Price to make up for their higher unit costs. Often, they fail to thrive under the onslaught of the “good enough” Performance Leader products from the bigger Standard Leaders.

Dell was not able to maintain a high level of Functionality and did not put price pressure on the other, much smaller, high-end competitors. Where was its value in the market?

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Update 2022:

According to Statista, since reaching a high of more than 360 million units shipped in 2011, the PC market has declined every year since then to 2019. Major vendors like Dell, Lenovo, and HP have managed to keep their unit sales steady and managed to increase their market share in this period of declining shipments. However, the pandemic made the years 2020 and 21 banner years for the PC industry. Worldwide sales have recovered to close to 350 million units.   In the fourth quarter of 2021, Dell shipped 28.5 percent of all PC units in the United States, an increase from the 26.1 percent share that the company held in the third quarter of 2021. Dell’s market share in the United States peaked at 31.7 percent in the first quarter of 2020.  Dell ranks third in the worldwide market. Lenovo leads the market, followed by HP at number two.

In 2022, the Alienware product is considered one of the best on the market.  The high-end gaming PC sales have grown from $10.7 billion in 2015 to $18.5 billion in 2020.  Dell’s sales in 2022 exceed $100 billion.  The consumer client solutions group had sales of nearly $16 billion in 2022.  Dell suffered operating losses from 2016 through 2019 but has recovered profitability in 2020 through 22.  The Dell Alienware product in 2022 is a high-performing, quality built and well-designed product whose pricing is at the high end of the market.  It also has a good reputation for customer service.  It is a clear leader in the industry.

The two best consultants in the world have taken a positive view of Dell’s high-end product. See what we mean HERE

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Update 10/25.

Dell has competed well over the long term in a highly attractive market.

The PC gaming market is an unusually large and highly dynamic business. As a Performance Leader market in the larger personal computer industry, it is much larger than Performance Leaders in most other markets. In 2025 the gaming PC market totaled $86 billion in sales. Regular PCs totaled $223 billion in sales. The gaming PC market also exhibits continued dynamism in competitor leadership and ever-growing user demand.

Today’s PC gaming industry leaders include Dell, HP, and Lenovo. These are also the leaders in the regular PC market. There is a good reason for that. To be successful, a PC gaming competitor must be able to sell both desktop and laptop gaming PCs. Desktops control 73% of the total market. Laptops are growing but have a way to go to match the technical capabilities of desktops in the gaming industry. Both HP and Lenovo are more recent entrants to the market as they successfully developed specialized gaming PCs for the industry.  MSI, a capable and innovative laptop competitor, has lost share to these two new leaders. As the market becomes more difficult, MSI may prove to be an attractive acquisition for one of the industry’s leaders.

The gaming PC has enjoyed robust demand due to the industry’s transition to Windows 11, and more importantly, to the constant Function innovations of the industry in touch, sound, controls and speed of their products. Dell has proven its mettle by keeping pace and maintaining its leadership position in this market. The emergence of online retailing in the industry adds both to final customer Convenience and even more to the importance of brand, representing Reliability.

Leading competitors in the PC gaming market make a good living. Pricing is 2 to 3 times higher per unit in the PC gaming market than it is in the regular PC market. Industry margins are much higher as well. Some of that comfortable pricing is due to the influx of ever more new players, especially in Asia, which now represents nearly 50% of the total market. These gaming customers are much more fragmented than the large institutional customers who depress prices and margins in the regular PC industry.

The leaders continued to prosper because they had well-established and large supply chains, with global consistent access to components. Costs have begun to squeeze smaller competitors and those who do not control proprietary hardware and software systems. This was particularly obvious as the industry faced component shortages as the market came out of Covid.  This is a warning to these smaller industry players. Get bigger quickly or migrate out of the market as a stand-alone company.

So, Dell has adapted well in this PC gaming market. It overcame the difficulties of integrating a Performance Leader company into a regular PC product line that already had Performance Leader products. It has then allowed the people running its PC gaming brand, Alienware, to compete well with highly capable competitors.

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