#211: Alienware – Computing Power Empire

Synonymous with gaming Alienware rode the wave of easy to use and beautiful gaming computers. Now they are the G.O.A.T.

Dave Young:

Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.

[Pinpoint Ad]

Dave Young:

Welcome back to The Empire Builders Podcast, Dave Young here with Stephen Semple, and we’re talking about empires. This is The Empire Builders Podcast. You tuned in because you wanted to hear us talk about empires, right?

Stephen Semple:

I hope that’s why they tuned in.

Dave Young:

I mean, I’m assuming that’s why you…

Stephen Semple:

Either that, or you’re in the wrong place. But still, stay with us, you might like it.

Dave Young:

If you’re expecting steamy ghost stories, this is not your podcast.

Stephen Semple:

Oh, there goes half our audience.

Dave Young:

That’s all right. “Choose who to lose,” that’s what we always say. People that are interested in steamy, ghost stories, this is not it.

Stephen Semple:

But.

Dave Young:

Aliens.

Stephen Semple:

Aliens?

Dave Young:

Maybe. Maybe-

Stephen Semple:

Maybe.

Dave Young:

… I’m saying. Maybe.

Stephen Semple:

Yeah, maybe.

Dave Young:

Because today’s topic, Stephen told me we’re going to talk about Alienware, as an empire. And I know them because I remember, back in the day, one of my kids insisting that that was the only computer that would allow them to play World of Warcraft in any kind of successful fashion. Does that sound right?

Stephen Semple:

Yep. That would be pretty accurate. Did you end up buying an Alienware computer?

Dave Young:

Probably. I don’t know. Dad was just the checkbook.

Stephen Semple:

Well, we’re going to talk about Alienware, but even before we go into Alienware, I want to take a little bit of a detour, because it actually speaks to Alienware. Is, one of the things that Alienware was really good at recognizing, was things going on in the world. And you know how we often talk about tapping into what’s happening out there, and the emotions that’s happening out there, and looking outside of your world. I had a really interesting conversation this weekend with Bob Camp. Now, Bob Camp is the co-creator of Ren and Stimpy.

Dave Young:

Okay, yeah, yeah.

Stephen Semple:

Now, if you remember, remember back at the Slinky episode? Remember when we covered Slinky?

Dave Young:

We talked about Log.

Stephen Semple:

And we talked about Log. Well, as it turns out, Dave, you are completely right. Bob Camp told me that the whole thing Log, was actually completely inspired by Slinky.

Dave Young:

Oh, yeah, I was just, yeah.

Stephen Semple:

And here’s what happened. It was in the very first episode of Ren and Stimpy, and they had produced it, and they suddenly realized just before it was about to go on air, they were a minute short. And he was like, “How do we come up a minute fricking short?” So that night he decided, “I got to come up with a minute of content.” And what he decide to do is create a commercial. He thought. “Let’s start the commercial.” So the very first Ren and Stimpy episode started with that commercial Log, and he very specifically wanted to tie into something that was a shared experience, that had a positive emotional context, and that he could kind of have some fun with. But it was that whole looking outside the world, and that’s how he came up with Log. Yeah.

Dave Young:

Nice.

Stephen Semple:

When I come see you in Austin, people can’t see this podcast, but I’m going to show this to Dave. Here’s what I have for you, Dave.

Dave Young:

Oh my God.

Stephen Semple:

And look who signed it.

Dave Young:

Really? Yeah. Holy cow.

Stephen Semple:

I have a special present for you, Dave.

Dave Young:

That is so sweet.

Stephen Semple:

To commemorate Slinky.

Dave Young:

Can I say what you just held up?

Stephen Semple:

Yeah, absolutely.

Dave Young:

Yeah. Is that like an actual gel, or slime thing?

Stephen Semple:

No, it’s-

Dave Young:

Or, it’s a print?

Stephen Semple:

It’s a print that he drew-

Dave Young:

Of Log.

Stephen Semple:

… so he’s drawn, of Log.

Dave Young:

Of the cool kid with Log, and it’s signed by him. That’s beautiful.

Stephen Semple:

Yeah. And it says, “To Dave, you filthy swine.”

Dave Young:

Filthy swine, I get it. I see what he did there. I love that. Thank you so much.

Stephen Semple:

Yeah. So next time I’m down, we’ll have that for you. But now, on to Alienware.

Dave Young:

Sure. Why wouldn’t we continue on to the episode?

Stephen Semple:

It is that idea of noticing what’s happening in this space, because Alienware was brilliant on this front, because while the whole industry was moving one way, they moved a different way because they noticed something going on. So Alienware, for the first year of its life, was not Alienware. When they first founded it, it was called Sakai of Miami. And the name Sakai comes from a famous Japanese World War II Ace. But they decide to change it to Alienware because the two founders, Nelson Gonzalez and Alex Aguila, were both fascinated with aliens. They are complete alien fans, they believe in aliens, all of that. And so they decided, “Let’s call it Alienware, because that’s a little bit more fun.” So they were both childhood friends, born and raised in Miami, first generation Americans, parents were Cuban. So this is the other interesting thing. Not Silicon Valley. Miami-

Dave Young:

Miami.

Stephen Semple:

… is where this business started. And they did really, really well. 10 years after founding, 2006, they sold to Dell. Now, I was not able to find the price that they sold to Dell for, but I’m assuming a pretty good price tag. And that was the year that their sales hit 225 million. And they were on quite a growth spurt, because the year before, they were 172 million. They were doing really, really well.

But while they were founded in 1996, our story really starts in 1993, because in 1993 the Pentium processor comes out.

Dave Young:

Okay, yeah.

Stephen Semple:

And the Pentium processor changes the computer world, because it opens the door for video games to be able to be run on PCs.

Dave Young:

Before that, it was the 286 and the 386 and the 486. Just clones, right?

Stephen Semple:

Yeah.

Dave Young:

And then Pentium, all of a sudden was-

Stephen Semple:

But the Pentium had enough power that you could now do video games on computers. So by the mid 1990s, computers are starting to be custom-built for gamers, because while the Pentium can run it, there’s all sorts of problems with how peripherals connect together, and it running properly. So basically, this cottage industry sprouted up, of people specifically making computers for gamers. And Nelson hung out with gamers, and he started making custom PCs in Miami. And here’s the interesting thing. You would think, “Well, Miami’s kind of a bit of a weird place to be doing that. Where do you find your motherboards, and all those other things?” And it turns out Miami is the gateway to Latin America.

Dave Young:

Absolutely.

Stephen Semple:

So there was warehouses full of tech gear that was being shipped to Latin America. So he was actually able to source stuff locally.

Dave Young:

Sort of tap into the artery that is feeding South America.

Stephen Semple:

Yes. Yes.

Dave Young:

I mean, for people that are geographically challenged, like me. I remember the first time somebody told me, “If you look at a map, almost all of South America is east of Miami.”

Stephen Semple:

Right.

Dave Young:

It’s east of Miami. That doesn’t make sense-

Stephen Semple:

Which is hard to get your head around. I know.

Dave Young:

… until you look at a globe.

Stephen Semple:

Yeah.

Dave Young:

So it’s just, but yeah, they’re just flying south. Cool.

Stephen Semple:

Cool. But he grew up, again, his parents were immigrants, and he grew up frustrated as a teen, working what he would call these dumb jobs. And his parents didn’t have a lot of money, but one of the things he pointed out is, Cuban-American culture is very supportive. Like if you were a kid growing up and you said, “I want to be president,” they’re like, “You can be president.” Very, very supportive of children’s dreams.

And he had a friend had a business, building PCs, and he ordered a gaming PC from him. But he wanted to watch it being built. He was like, “Okay, I’m going to buy one from you, but I want to watch it being built.” He watched this being built, and look, in the ’90s it wasn’t easy to build or configure machines to work with games. It was quite a challenge. And Doom was the game that got him going. When he started playing Doom, he was like, “I need a machine for this.”

So he’s hanging out with his buddy, Alex, and they decide, the first idea that they have for a business is, “Do a board game.” And they built a board game around pro wrestling. So it’s interesting, that the first thing was not, “Build a computer.” And it was a tactical game, and Nelson created the characters, and it sold pretty well. But it didn’t really make a lot of money. On the side, nelson was making these computers, and he got interviewed by a tech guy, and he ended up getting a job at the tech guy. And he learned a lot, because basically what was happening is, they were supporting computers, post-production, in people’s houses and things along that lines.

This is when he realized, “The stuff has got to work better with peripherals.” So he started building a few machines for people that he knew. The big difference was, this whole idea of the video card and the motherboard and the peripherals all needing to work in a specific manner, for gaming. Because in a lot of computers, it just simply didn’t work well. And then you added the new drivers, it just… Stuff didn’t work well. He started building these computers, and then eventually, enough people were asking that they ended up forming the business and starting Alienware. You talk about, even the chassis were crappy built. They often had to actually upgrade the chassis, and things like this. Like, you would cut yourself on the metal, and things along that line. And the internet was new.

Dave Young:

A card might fit in one slot, and not in another.

Stephen Semple:

Yeah, and the internet was new, and people didn’t really know how to configure to the internet. But you know what? They were out there doing it. And here’s the big turning point for them. First big turning point.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business, right after this.

[Empire Builders Ad]

Dave Young:

Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.

Stephen Semple:

And here’s the big turning point for them. First big turning point. There was a company called Falcon Northwest, that they saw an advertisement in a gaming magazine for. And the advertisement kept showing up in these gaming magazines, and he went, “You know what? This company is able to advertise so consistently, there’s clearly a business, here. We need to lean into this.”

So they then decided to do a little ad in PC Magazine, but what they recognized was, gamers are kind of nerdy, so they need to make this ad a bit nerdy. So they did this weird looking alien, hovering over a PC with all the different components, and the price. And that’s basically how they did this advertisement, because they thought, they love aliens, and they wanted to lean into it. And they offered the price, and it was basically a mail order computer. And they basically quit their jobs, they both invested $5,000, all put on credit card, to run this ad and start this business. And they also saw things like 3D gaming coming. So they knew that this was going to be a big deal.

So they ran that ad, then another thing they did was, there was another magazine out there called Boot Magazine. And they sent a unit to these guys, and they loved it, had these great reviews. Now, noticing what’s going on out there. What they noticed at the time was, here was the big trend in the computer industry. So they were doing all this dabbling around on the gamer side, and what they found was, big companies were not focusing on gamers. Big companies were trying to kick open the business market.

Dave Young:

Right.

Stephen Semple:

And that was all about making every machine the same, making it work with the business software, and bringing down the price. That was what everybody was doing. Meanwhile, they noticed that gaming, because of the power of the chips and whatnot, you were able to play more games on PCs. And so there was this need for gaming devices.

Now, the gaming devices, while the price of computers were going down, like at the time, you could get an iMac for 1200 bucks, you could get a PC for 500 bucks. They were selling their units for six to $7,000. I want to say this again. 10 times the price.

Dave Young:

Yeah.

Stephen Semple:

Now, here’s the other thing that they also did notice.

Dave Young:

I don’t remember my kids telling me that.

Stephen Semple:

That’s what I was going to say. I think you would remember buying it.

Dave Young:

I remember the green logo on the thing.

Stephen Semple:

But here’s the other thing that they notice going on. The iMac, which was again, premium price. PCs are $500, iMac’s $1200. The iMac was beautifully designed.

Dave Young:

Yeah. This was the little color iMacs, right?

Stephen Semple:

Yes. Yeah. And sold like hotcakes.

Dave Young:

By color. I mean, the case was different, because you could get a blue one, you get an orange one. Yeah.

Stephen Semple:

Yeah. Here’s what they decided. Their machines, especially if they’re charging this premium price, needed to be beautiful as well. So you know what they did? They went to a custom auto body shop, and they had them spray paint the cases.

Dave Young:

All right.

Stephen Semple:

So that basically they had this cool, it wasn’t hot rod design, it was a alien design, but it was that whole idea of this case coming that was beautifully designed, and spray-painted, and all of that. And they got that idea from seeing what Apple did with the iMac.

Now, here’s the other thing that they noticed. Dell, how Dell was doing mail order businesses, right? Because Dell, you could do the custom computer. And what they realized was, certain components went together with certain things. What they created was, “If you’re buying this thing, here’s the peripherals that can go with it.” So in their online ordering, when you were doing the configuring, it would naturally help you configure it to things that work together.

And then the next step they did, they recognized there were certain things gamers fell in love with, like the joystick. Gamers would absolutely have… So a gamer could send their joystick to them, and they would configure a machine and test it, make sure the joystick worked with the machine.

Dave Young:

Oh that’s, yeah.

Stephen Semple:

Right?

Dave Young:

So, make it easy.

Stephen Semple:

Make it easy. Make it really, really easy. So, as their volume grew, they ran into some really interesting challenges. So challenge number one was, sometimes, because they were still pretty small, something would come out and they couldn’t get it. Like there was a particular computer that came out on Gateway that they couldn’t get the part that they wanted, like the motherboard. So they would buy that computer, strip the motherboard out, put a different motherboard in, use it for themselves, put that new motherboard into one of the machines that they were making.

And there was another point where they ran into a real issue, because they would take these credit card deposits, and there was one point where the credit card companies came along and said, “We don’t understand what you’re doing, because you’re this scary little business in Miami.” And they started holding on to the funds. And they got lucky, where they managed to convince a banker to come out and see what they were doing, and they found a bank that would give them a line of credit so that they could keep doing what they were doing, because they bootstrapped this whole thing. They needed those deposits in order to buy the equipment, to build it, to then send to you and get the rest of the money.

And at one point, they were growing so fast that what would happen is, they would get their next office warehouse space. And by the time they moved into it, the whole idea was, “We’re in office A, and we’re going to move to office B.” By the time they moved into office B, they needed A and B. They just couldn’t keep ahead of the curve.

Early 2000, another interesting thing happened. The big companies found themselves in crisis, because of these low price points, and IBM actually got out of the business. Remember, IBM sold their business, but they were still confident things were going to work for them, because they saw another big change happen. And that was the Xbox. Now, one could say the Xbox would be a threat, because now you could play a game on a console. But what they knew was, more games would be developed.

Dave Young:

Yes. And more people would be playing games.

Stephen Semple:

And gaming would go mainstream, because now you got Microsoft promoting gaming, that it would actually grow. And this is what I mean about, these guys were really good at looking outside the world. They looked at Apple, “Make it beautiful.” They looked at Dell. “Here’s how you configure machines through selling online.” They looked at the crisis going on in the computer industry, but at the same time, Xbox. They didn’t see it as a threat. What they realized is, this would make games go mainstream. They were really out there watching and understanding their marketplace.

Now 2003 comes along, and Dell decides to enter the space, enter the gaming space. And they get kind of nervous. And there’s one point where Dell approaches them to buy them, and the deal, they do all this due diligence, and a few months later it falls apart. But you know what? To their credit, they kept doing what they were doing and three years later, Dell comes back to them again and says, “Yeah, we want to buy you.” And of course at that point they’re going, “Are you serious this time?” And I was never able to find how much they sold them to Dell for, I’m sure they did very well. A few years ago, Dell published something saying that they felt that the Alienware part of their business was worth like $3 billion.

Dave Young:

Wow.

Stephen Semple:

Yeah, to me, quite the interesting story. Especially where the whole industry, all the big players are going one direction.

Dave Young:

Yeah. Well, and they picked a niche that allowed them to observe everything, and pick the best little innovations from a variety of places-

Stephen Semple:

Yes.

Dave Young:

… and integrate them into their business model.

Stephen Semple:

Yes.

Dave Young:

Which is, we tell people, “You don’t want to copy something that…” Like, you don’t want to copy a whole business from somebody else.”

Stephen Semple:

Right.

Dave Young:

“But pick and choose. Pick the things that somebody’s innovated that are going to apply to you, and do a little of that.”

Stephen Semple:

Well, and the Apple-

Dave Young:

Then sprinkle it in like spice.

Stephen Semple:

Right. And the Apple computer one is almost a nice example of that, Dave, that’s a great observation. Because if you think about it, so the Apple computer is a great example of that, where you could get things of different colors. What they did instead was, “Let’s go to an auto body shop and have this metal thing painted.” So they learned from it, but then they put their own spin on that idea. So yeah, it’s exactly what we said. So I found there was just lots of really neat, really neat things that they did, from just watching others.

Dave Young:

Well, and I’m glad it worked out for them. I wonder where, they’re just sitting on a beach somewhere, enjoying a pina colada today, somewhere. Probably.

Stephen Semple:

Whatever it is, they’re doing okay.

Dave Young:

They’re doing okay. Well, thank you for telling us the tale of Alienware. What a cool thing.

Stephen Semple:

It’s a fun one, right?

Dave Young:

Uh-huh. Appreciate it.

Stephen Semple:

Thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big fat juicy five star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.