Alienware Corporation

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Alienware Corporation

14591 Southwest 120th Street
Miami, Florida 33186
U.S.A.
Telephone: (305) 251-9797
Toll Free: (800) 254-3692
Fax: (305) 259-9874
Web site: http://www.alienware.com

Wholly Owned Subsidiary of Dell, Inc.
Incorporated: 1996
Employees: 504
Sales: $172 million (2005 est.)
NAIC: 334111 Electronic Computer Manufacturing; 334310 Audio and Video Equipment Manufacturing

Alienware Corporation manufactures high-performance computer systems designed primarily for video gaming enthusiasts. The company sells its computer systems mainly under the brand names "Area-51," "Aurora," "ALX," and "Lightspeed." Systems range in price from $799 to more than $9,000, averaging between $3,000 and $4,000. Alienware sells its products through its web site to customers in North America, Europe, Australia, and New Zealand, and at a company-owned retail store in Miami, Florida. A stand-alone subsidiary of Dell, Inc., Alienware builds its systems by hand using the most advanced computer components available on the market.

ORIGINS

When Alex Aguila and Nelson Gonzalez founded Alien-ware in 1996, their business strategy bucked conventional wisdom. The same held true ten years later, but the financial success of their company offered a compelling rebuttal to conventional wisdom and all the naysayers who had scoffed at their chances of survival. Aguila and Gonzalez grew up together in the Miami area, sharing a passion for playing video games that served as the inspiration for their entrepreneurial careers. While they were in high school, the pair spent hours taking apart computers and rebuilding them to handle the demands of resource-hungry video games. Gonzalez had a particular fondness for flight-simulation games, and one in particular, "Falcon 3.0," drove him to start his own company. Gonzalez, using a personal computer (PC) with an Intel 386 microprocessor, needed to install a math coprocessor to play the game, an electronic makeover that directly led to the formation of Alienware. "That's the game," Gonzalez reflected in a March 26, 2006 interview with Business Week Online, "that pushed me to say to myself, 'There's gotta be people out there who want machines outfitted to play these games.'"

Gonzalez and Aguila formed Alienware in 1996, convinced there was a market for custom-built, high-performance computers. Gonzalez, 30 years old at the time, was employed as an information technology manager at a small post-production company. Aguila, two years Gonzalez's junior, was working as a medical technician. After years of having to upgrade motherboards, microprocessors, and graphics cards, they both envisioned a consumer need for the same kind of PCs they desired. As gamers themselves, they knew their target customer, but others were unconvinced. The PC market in 1996, as it would be ten years later, was regarded as a low-profit-margin business. Major manufacturers vied for market share by churning out computers by the millions, competing as high-volume producers in a market of ever-declining prices. Gonzalez and Aguila, in the months before desktop PCs were given away as incentives for signing up for Internet service, devised an entirely new business model for Alienware, a name chosen because of Gonzalez's interest in UFOs, science fiction, and the television series The X Files. They intended to market PCs as luxury items, not commodities, but they quickly butted against the prevailing perception of what would work in the computer market when they approached bankers and attempted to secure capital for their start-up venture. "Everyone told us, 'This is insane,'" Aguila said in a March 2005 interview with Entrepreneur. "We got laughed out of every bank in Miami."

Undeterred by the response to their business idea, Gonzalez and Aguila pooled their savings and relied on their credit cards to come up with the $13,000 they used to launch Alienware. The pair used Gonzalez's garage in Hialeah, a city in the Miami metropolitan area, as Alienware's headquarters. Eventually, they hoped to sell 50 computers per month, perhaps as many as 100 per month, but their initial focus was basic. They at least had to recoup the $13,000 and pay off their credit cards, whose spending limits quickly were reached. They relied on friends and acquaintances from Miami's gaming community at first to sustain their modest operations, barely covering expenses during their first months in business. To reach their upper target of selling 100 computers per month, Gonzalez, who served as chief executive officer, and Aguila, who served as president, needed to earn the respect and the business of the hardcore gamers, the typically young males who would become Alienware's lifeblood.

INDUSTRY RECOGNITION IN 1998

Gonzalez and Aguila knew that the most effective way to develop a reputation was to draw praise from the most prominent gaming magazines, which represented the principal source of information for gaming enthusiasts. In 1997, they sent a complete computer system to Maximum PC, regarded as one of the harshest critics of computer hardware. The system, featuring cutting-edge hardware in a black tower emblazoned with the caricature of an alien head, earned a positive review. The publicity failed to inundate Gonzalez's garage with requests for custom-built systems, but it lent legitimacy to the Alienware name. The following year, Gonzalez and Aguila sent another system under the "Area 51" brand to PC Gamer, calculating how many more days they could survive without a substantial influx of orders. PC Gamer gave Alienware's Area 51 system its esteemed Editor's Choice award for 1998. The editor of the magazine, reportedly, did not want to return Alienware's high-powered system.

"Validation from the industry was great," Gonzalez remembered in a September 21, 2000, interview with the Miami Herald. Earning the highest praise from one of the industry's most influential publications gave Alienware all the attention it needed to land a wealth of business. The two partners treated the opportunity presented to them wisely, employing a business model that would prove to be more than financially viable. They employed a direct-sales model, borrowing the example set by Dell, Inc., on its way to becoming the largest computer manufacturer in the world. Having eliminated dealing with retailers by adopting a direct-sales approach, the founders next insisted on payment upfront, freeing them from underwriting receivables and depreciating inventory. To sell its high-priced systems, Gonzalez and Aguila relied on Alienware's web site solely, paying assiduous attention to the company's only distribution channel. Customers who purchased an Alienware system received a manual with their name printed on the front cover. Customer support was available seven days a week, 24 hours a day from Alienware employees, not subcontractors. By keeping a tight control over spending, using just-in-time inventory, and attending to the needs of their customers, Gonzalez and Aguila presided over a financially healthy business. The foundation was set to support growth, which followed at an electric pace.

COMPANY PERSPECTIVES

Mission: Empower the customer to create, work and play faster by innovating and building the most powerful computers in the world.

Of the two founders, Gonzalez possessed the greater knowledge about hardware, the building blocks of Alienware's blazingly fast systems. During its first few years in business, the company benefited from important relationships that were established with leading hardware and software manufacturers. Because of its close ties to those defining the technological vanguard of the computer industry, Alienware received favored treatment, often becoming one of the first vendors to try the latest, fastest components developed by the industry's elite manufacturers. The company's access to state-of-the-art technology translated into exceptional systems that gamers clamored for, strengthening the company's reputation in the market with each technological advancement. The leading-edge components of Alienware's systems were on display in the company's growing roster of products offerings, which were offered in metallic colors (Nova Yellow, Plasma Purple, Saucer Silver, Conspiracy Blue, Cyborg Green, and Martian Red) for the first time in 2000. By 2000, after garnering three consecutive Editor's Choice awards from PC Gamer, an average Alienware system featured a 1.1 gigahertz (GHz) processor, a 40 gigabyte (GB) hard drive, 256 megabytes (MB) of memory, and two video cards. The system sold for $3,227. Sales were expected to reach $8.5 million for the year, as Gonzalez and Aguila, initially hoping for a monthly production volume of between 50 and 100 units, presided over a company with 40 employees who were custom-building 400 units per month. Ahead, much growth was anticipated, as the company planned to add notebooks, workstations, and servers to its product mix. Revenues in 2001 reached $28 million.

The first years of the 21st century saw Alienware record explosive growth, quieting any of the remaining skeptics who questioned viability of selling high-priced products in a low-margin, commodity industry. As orders flowed in, the company experimented with opening up other distribution channels, straying from relying exclusively on its web site for the first time. In December 2001, the company signed a contract with the massive retail chain Best Buy Co., Inc. Under the terms of the agreement Best Buy began offering Alienware products, beginning with the Area 51 2.0 GHz and 1.6 GHz systems, but Alienware ended its involvement with the retailer within a year and returned to using its web site and a direct-sales approach. Demonstration systems were put on a display at a number of retailers, however, including Electronic Boutique outlets across the nation.

Innovations, market diversification, and new brands highlighted Alienware's progress as it headed toward its tenth anniversary. In 2002, the company introduced the first notebook computer capable of running resource-demanding games. The 11-pound Area 51m featured a 2.4 GHz Pentium 4 processor, 512 MB of memory, a 40 GB hard drive, and a 64 MB video card, retailing for approximately $3,000. In 2003, a new line of custom-built workstations debuted for professional customers, followed by the introduction of two new brands in 2004, "ALX" and "Lightspeed." The ALX brand took the company's affinity for high-performance to the extreme, symbolizing the highest standards in performance. ALX systems featured liquid-cooling technology and state-of-the-art hardware, with a fully customized system selling for more than $9,000. At the other end of the price scale, the Lightspeed brand offered gaming configurations for those on a budget.

DELL ACQUISITION IN 2006

Alienware ranked as one of the fastest-growing private companies in the United States by 2005. Revenues reached $112 million in 2004 and leaped to $172 million in 2005, the year the company opened its first retail store in a Miami mall. Fueled by the ever increasing sales of its gaming equipment and new streams of revenue coming from corporate and government sales, the company's growth put Gonzalez and Aguila at a crossroads on the eve of their tenth anniversary. They needed capital to expand, which meant they needed either to take Alienware public to raise the necessary funds or sell the company to a larger rival. The founders opted for the latter in 2006, agreeing to sell their company to the largest computer manufacturer in the world, Dell, Inc.

KEY DATES

1996:: Alienware is founded by Nelson Gonzalez and Alex Aguila.
1998:: PC Gamer selects Alienware's Area 51 system for its "Editor's Choice" award.
2002:: Alienware introduces the Area 51m, a notebook computer capable of running graphically intensive software.
2004:: Alienware launches its super-premium ALX line.
2006:: Alienware is acquired by Dell, Inc.

For Dell, which had revamped its XPS line in 2001 to feature high-powered components, the acquisition of Alienware complemented its foray into the high end of the market. For Gonzalez and Aguila, the deal, which was completed for an undisclosed price, offered access to Dell's distribution system and the benefits of having a deep-pocketed parent company, all without ceding control over their company. The Alienware brand would continue to exist under Dell's ownership, the company's headquarters would remain in place, and Gonzalez and Aguila would continue to lead the company. "I'm very satisfied because we were able to agree that the best way to make this work was to have an autonomous position," Gonzalez said in a March 23, 2006, interview with the Miami Herald. "That makes sense for us and our employees." A Dell spokesperson in the same interview confirmed the company's intention to treat Alienware as an independent company, saying, "We certainly don't plan to go in there and really change anything because we recognize that they're successful and why they're still successful."

In the wake of the acquisition, Alienware embarked on its second decade of business, beginning a new era of existence as it tried to remain true to its loyal customer base. One risk of the Dell-Alienware combination was the potential that gaming enthusiasts, who accounted for 80 percent of Alienware's revenues, would be disaffected by the move into the mainstream, but Gonzalez and Aguila remained confident that they would be supplying hard-core gamers with cutting-edge systems for years to come.