Retail Survivor Emachines Restages; MP3 Heralded as Next Killer App

Brandweek, Nov 22, 1999 by Todd Wasserman

"Let's see, there was IBM, Packard Bell-NEC, CTX, Acer ..." said Emachines CEO Stephen Dukker from his perch at the huge Comdex computer exposition in Las Vegas last week, rattling off the list of casualties this year in the brutal retail market for desktop PCs. A year ago, Dukker had to sit out the expensive show, but 1 million low-end PCs later, Emachines is No. 3, with 25% share, vying against the likes of Hewlett-Packard, Compaq and Sony Electronics.

Still, Dukker is far from complacent. Even as he plans a barrage of $399-599 systems for the holiday season, he's also readying his exit from the bloodiest portion of the market with plans to reinvent the Emachines brand as a mid-range supplier, starting with the $899 eMonster desktop unit and the $999 eSlate notebook. While Dukker is convinced the Emachines brand by now has come to represent good value, not just low prices, others are dubious about the strategy shift. "They're abandoning the original idea that made them popular," said a sales exec at a rival PC marketer. "Who's going to buy an $899 Emachines versus an $899 Compaq?"

Actually, Dukker fears HP more than Compaq, which has been under intense investor pressure to abandon its "market share at any cost" philosophy. By contrast, HP under new CEO Carly Fiorina has been getting more agile and focused, and now it's ready to launch a $200 million rebranding effort, complete with new logo and ads employing the tagline, "Invent." As the rebranding via Goodby, Silverstein & Partners, S.F., proceeds, Fiorina is expected to take a more active role as spokeswoman than predecessor Lew Platt, both publicly and with the trade.

In a spot due to break Dec. 1 that was previewed at the show, Fiorina did a voiceover tracing HP's storied growth from a garage operation. "Carly will be the type to know the first names of the heads of the top 40 retail partners they do business with," said Larry Josephs of HP distributor New Age Electronics.

The wild card is Sony, with the budget to make a major push if it wants. Though senior marketing manager Richard Black said Sony covets IBM's abandoned retail share, it's not eager to get into a price war anytime soon. "Low-end PCs don't function well," Black said. "When you buy something from Sony, it's got to last."

Thus, Sony will mimic the approach of Apple Computer (not a Comdex exhibitor), positioning its PCs as the center of an entertainment system. In ads airing this month, both have been highlighting their units' ability to show and edit home movies. "Speeds and feeds isn't where it's at," Black said.

With the PC market entering a more mature phase, some heavyweights are putting their marketing muscle behind what some hope will be the next killer app, MP3 music players. Philips may feature its Rush device as star of a new campaign breaking in February or March, and perhaps in a sponsored music tour, said Edward Volkwein, svp-global ads/promotions. "This is the biggest thing to hit audio in a long time," he said.

Sony's similarly got big plans for the Memory Stick Walkman due in January, starting with a Web campaign next month and a prominent role in an umbrella campaign in early 2000, said Bob Nell, vp-personal audio.

But barriers remain: copyright concerns for downloaded music, competing technical standards and $150-400 price points that may be too steep for Gen Y. "We're talking about people with $10 allowances," joked New Age's Josephs.

The MP3 rush recalls that of handhelds two years ago, a tussle in which 3Com's soon-to-be-spun-off Palm Computing unit bested manufacturers using Microsoft's rival Windows CE platform. That may change in 2000 when Microsoft's next version adopts a less Windows-like (and presumably more Palm-like) environment and fosters lower prices while maintaining its feature-rich positioning. "CE devices are more than just a (personal inventory manager)," said Win CE product manager Jim Floyd. Retail insiders expect prices to drop to the $299 range from the current $400 or so by early next year.

But Palm is very much a moving target. At the show, it disclosed a deal to cross-license the Palm OS with Sony's Memory Stick, with the first devices expected by mid- to late 2000.

It's also moving ahead on the targeting front, augmenting what appears to have been a successful marketing tilt toward females. A TV spot breaking next month features a female exec golfing with some male subordinates who are surprised at her prowess. As each starts to make excuses--they have to check if their flight is delayed, etc.--she uses her Palm device to get the needed info, thereby cutting off their escape. That kind of functionality could also cut off Win CE'S forays.