Dell eyes the potential of the consumer

Do you have much of an overseas opportunity for your CE products, or is it primarily a US push?
I think we have a good overseas opportunity. I would view (our strategy as, first and foremost, win the business customer, and win the enterprise customer.

Second is, win the consumer of PCs. Third would be to win the consumer with consumer electronics. In some of our more mature international markets with the most developed consumer businesses -- like the United Kingdom, Japan, Canada and Australia -- we definitely see a big opportunity in those markets for consumer electronics.

Even in Japan?
Japan is a wonderful market for our flat-panel TV. It's a wonderful market for small PCs. Our business in Japan is quite good, and we're rapidly approaching number one. We're not there yet but are rapidly approaching it.

What point will drive the adoption of the Dell Digital Jukebox compared to the Apple iPod -- like Dell PCs compared to Macs? What needs to happen?
I don't know, and it's honestly not a particularly high focus for us. Music players are not in the Dell scale. They're not a particularly large market. They are huge for smaller companies, but for us, they will never be a large market. Would I love to be the number one player? That would be great, but that's a market where I give a ton of credit to Apple. They came up with great products and a nice music service.

What fraction of your consumer electronics sales go to existing PC customers, and what fraction go to people who haven't bought a PC from Dell?
That's been a bit of a surprise for us. When we started to play around in these markets, we assumed that these would be overwhelmingly sold to existing customers. I can't give you really precise numbers, but we have recently measured a few of our newer categories, like music players and TVs -- and 52 percent are going to new customers. While it's too early for this to be really definitive data, it appears that those customers have a disproportionately high likelihood of then coming back to us and buying the PC. So that's a double win.

Are they using Dell PCs at work?
Perhaps. We don't know that. We know from our database that they've never bought a Dell PC from us directly.

Is that changing your marketing strategies with these new products, in terms of where or how you advertise?
One of our most important advertising vehicles is the Sunday newspaper insert.

It's a very successful vehicle for us. We started to do things like put TVs or music players on a cover of that insert, where six months ago, we would have said we want the PC on the cover. By putting that TV on the cover, we sell more PCs than when we have with a PC on the cover. We have to sell a lot more TVs, but we also have to sell more PCs.

People opened up because of the TV?
We captured their interest. Maybe they've gotten a little bit used to the insert. They may not be in the PC market, but that TV catches their eye.

Is price your main asset?
Dell's great secret and success in the PC market is that we have a fairly low market share among value-price PCs and an absolutely dominant market share among high-end PCs. If you were to use third-party data like IDC, what you would find in the sub-$500 category, which is the overwhelming share of PCs sold at retail, is that we have about 3 percent market share; in the category $1,500 PCs, we have between 50 percent and 75 percent market share.

So it is not surprising that we're winning in high-end electronics because we are taking that same customer. Again, the vast majority of customers that spend more than $2,000 on a PC come to Dell. It's those same customers that are earlier adopters of the digital lifestyle.

On other notes, how is the campaign against spyware going?
Spyware is a huge issue for the industry. We've seen calls related to spyware grow from less than 2 percent to of our calls 14 months ago to 20 percent now.

When people call us, they don't know they have spyware. Unfortunately, the solution can be as painful as an operating-system reinstallation. Step two is to educate people about how you need a spyware blocker on your PC or a spyware removal device.

We have offered a free spyware diagnostic tool on our site, and we're trying to get everyone educated that if you're not using a spyware tool, you're going to be in trouble. Ninety percent of consumers have spyware on their PCs.