With the Blackbird 002, Hewlett-Packard moves to counter rival computer maker Dell in the gaming machine segment

In the business for personal computers aimed at bleeding-edge gamers, it's not unusual for CEOs to trash-talk each other in public over who has the better machine. But since the two leading boutiques in the hard-core gaming business are now part of Hewlett-Packard (HPQ) and Dell (DELL), the discourse, such as it is, has been a little more civilized. But imagine what Mark Hurd and Michael Dell could be saying to each other now that HP is launching a new gaming machine aimed squarely at Dell.

The new HP machine speaks for itself, however. Dubbed the Blackbird 002, it's the result of the first collaboration between HP's personal systems group and VoodooPC, the Canadian PC boutique HP acquired nearly a year ago (BusinessWeek.com, 9/29/06). Known for its flashy, turbo-powered desktop and notebook PCs, Voodoo at the time sold fewer than 5,000 PCs per year, but at prices that can and often do exceed $5,000—and have been known to exceed $10,000 a machine.

HP's move to acquire VoodooPC followed a similar deal by rival Dell to acquire Alienware, another small gaming-PC concern based in Miami. The Alienware deal coincided with the launch of Dell's own high-end XPS brand of PCs. Given the price tags, the market for these machines is relatively small, measuring in the tens of thousands per year. But they're still profitable. While the average low-end consumer PC will command a profit margin of anywhere from 6% to 10% depending on model and manufacturer, profit margins on these high-octane devices can be closer to 40%.

Expanding the Brands

Rahul Sood, founder of VoodooPC and now chief technology officer of HP's gaming business unit, has been slowly stoking expectations about this release, taunting competitors in a blog entry that "the pain train is about to board." The Blackbird PC sports an aluminum chassis and is designed to let users easily modify the machine's innards. The box opens up without the use of any tools, Sood says, a big demand among the gaming set. "If the user wants to install another hard drive, they can get a standard hard drive and slide it right in," Sood says. "All the graphics cards are removable without a screwdriver. We've built it to be very easy to upgrade."

The Blackbird box will be sold via HP's Web site as a build-to-order product, supporting microprocessors from Intel (INTC) or Advanced Micro Devices (AMD) and graphics cards from AMD unit ATI or Nvidia (NVDA). Prices will range from $2,500 to more than $7,000, depending on options. It will ship with Microsoft's (MSFT) Windows Vista. The machines will be hand-built at VoodooPC's facility in Calgary, Alberta.

The machine represents an expansion of HP's multifamily branding strategy that started when the company first acquired Compaq in 2002. HP has proceeded to segment its brand carefully, positioning Compaq for the price-sensitive retail market and the HP Pavilion line for mainstream consumer users. The Blackbird will be sold under the HP brand, but "Voodoo DNA" will be stamped prominently on the machine to connect the two brands. HP will also continue to sell PCs at the high end using the VoodooPC brand, as well as through the VoodooPC Web site.

Countering Dell

Blackbird will plug a hole in HP's lineup, against Dell's XPS family, says Tim Bajarin, analyst with Creative Strategies. "Dell found a sweet spot with the XPS and did better than anyone expected them to do with it," he says. "It's in the upper end of the market, but not astronomical like the Alienware or VoodooPC brands that are aimed at the truly hard-core gamers. They don't quite go the same route as the hard-core guys, and they don't spend quite as much, but they do want a PC that's fully loaded. HP didn't have anything to counter Dell in that segment."

The Blackbird's $2,500 starting price is somewhat lower than the price at which Voodoo typically sells its machines, which usually start at $3,500 or more. HP's Sood says the lower price will help HP reach a broader market with the new machine. And the Voodoo name will help HP reap the benefits of the boutique outfit's street cred with hard-core gamers.

"Companies like HP are looking to really segment their business," says Stephen Baker, analyst with the NPD Group. "The whole PC market is really big, but there are these different customers out there who want very different things and different price expectations. It's just like in the car market, where one company, GM, sells both the Hummer and Saturn brands."

Due for More Voodoo?

The risk to HP, he says, is widening the availability of the VoodooPC brand so much that it comes too close to the mainstream and loses its status as an elite brand. "I'd expect HP to turn the spigot on a little, but not too much. This isn't about gaining market share, but about selling on the cutting edge."

Meanwhile, rumors of yet another Voodoo-ized HP machine are making the rounds. Gadget-enthusiast blogs have been posting pictures and rumors about another machine bearing the name Virtus. When asked, both Sood and Phil McKinney, head of HP's personal systems group, declined to comment, saying they don't comment on unannounced products.

A multibrand strategy is coming too from Acer, which last week acquired Gateway (GTW) and, in the process, European brand Packard Bell (BusinessWeek.com, 8/28/07). Acer will be selling PCs under its own brand, plus those of Gateway, eMachines, Packard Bell, and high-end notebook marque Ferrari, used under license.