HP reaches for the cool factor

May 28, 2008: 12:36 PM ET
Later this year, select Micro Center stores will set up HP-branded areas like this one that show off sleek designs and demonstrate how the products work together. Image: HP

Rahul Sood was working in a Calgary rug store when fate beckoned in 1991. A friendly customer saw him fixing a computer by the front desk, and suggested he take his skills into the PC business.

Sood borrowed $1,500 on a MasterCard and started Voodoo PC, buying high-end parts and building powerful workstation computers for clients in the local oil and gas industry. It didn't take long for him to find a more appropriate niche: In the early days Sood and friends stayed up until 2 a.m. playing graphics-rich video games on the office computers, so it felt natural when Voodoo began building eye-catching rigs for fellow video game enthusiasts.

Now Sood is a key player in Hewlett-Packard's (HPQ) push to create breakthrough new computer designs to push it further ahead of its rivals. Since HP acquired Voodoo in 2006, Sood and his team have been working to bring Voodoo's artistic, high-performance culture to HP's mass-market audience. HP's latest efforts, which will be unveiled on June 10, could begin to establish the company as a provider of beautiful technology gear – an image that consumers had traditionally associated with competitors like Apple (AAPL) and Sony (SNE).

"Voodoo inside HP is very much akin to the acquisition of Lamborghini into Audi," says Sood, a car buff who races in his spare time. "In the new Lamborghinis the quality is 100 times better, and in Audis, the styling has gotten more aggressive – it's a win-win situation for both companies."

HP's moves are about more than looks. The PC wars have changed. In the 90s, victory meant building PCs cheaper and faster. Michael Dell (DELL) defined the era by establishing a build-to-order process at his Texas plants, tightly managing parts and inventory, then cutting prices to bleed his rivals. Since then, Dell's competitors have largely neutralized its cost advantage, so today victory is more likely to mean building innovative PCs and selling them in a high-class environment. (Dell has responded by focusing more on retail sales, and courting gamers through its Alienware unit.)

That's why HP has already been putting more focus on aesthetics. When PC unit chief Todd Bradley arrived at HP three years ago, he observed that business laptops had all the flair of military tanks and challenged his team to radically redesign them.

Since then, HP's entire line of machines has begun dramatic changes. Many laptops now come with stylish, eye-catching engravings. A quirky touch-sensitive computer won raves from Martha Stewart, and a muscle-car desktop excited video-game enthusiasts with its precisely-engineered parts. The company even worked with the Pasadena College of Art to rethink computer packaging. A marketing makeover completes the package, with commercials featuring celebrities like rapper Jay-Z and snowboarder Shaun White. (By way of contrast, a recent Dell ad featured Burt Reynolds.)

Yes, HP has come a long way. In the spring of 2005, when Bradley first sat down with CEO Mark Hurd to talk about joining the company, HP was still struggling to digest its acquisition of Compaq and still trailed Dell in the marketplace. Over breakfast at the Stanford Park Hotel in Palo Alto, the two men talked about how to streamline the PC division and make it a winner. "I really believed in our ability to drive innovation into the core PC space," Bradley says. "It was an interesting opportunity to change the way people viewed computing, and make it personal."

Weeks later Bradley joined the company, and began to deliver. He quickly brought in a new leadership team and standardized the basic skeletons of HP's computers to simplify manufacturing and speed innovation. Profit margins have steadily risen from less than 1 percent the year before Bradley took over to more than 5 percent now.

Now that Bradley has the mechanics down, more attention has shifted to marketing. Aside from the design of the PC lineup, his team is also working on a novel retail strategy.

I got a peek at the retail part a few weeks ago. During a conference for its reseller partners, HP built a mockup of its store-in-a-store concept in a room at the Ritz Carlton in San Francisco. The most impressive thing about the setup was how well everything worked together; computers, printers, displays and other items sat on polished white surfaces, organized by how they might be used. The packaging matched, too – from printer cartridges to laptops, everything sported a black background accented by bright colors.

Versions of the retail space will begin appearing in stores this summer and fall. Micro Center, a U.S. electronics chain, will test the concept ahead of the holiday season; and HP will set up a boutique in Harrod's, the upscale department store in London, this summer. The stores will include specially trained workers, promotions to draw people inside, and a commitment to continually improving the experience based on customer feedback.

For Satjiv Chahil, who heads up marketing for the PC division, it's a reflection of how computing has gone mainstream. These days electronics stores aren't really competing with each other – they're up against chic fashion shops like Hollister, Louis Vuitton and Miss Sixty, competing for disposable income. "The purchasing power that people have is going to go somewhere," Chahil says, and he has a point. Visit the mall, even during tough economic times, and you're sure to see plenty of money being thrown around. Why shouldn't HP get more of it?

"They've taken a stronger look at the experience of shopping for their product, versus just having their product available at multiple outlets," says Kevin Jones, vice president of merchandising at Micro Center, who has been working with HP on the in-store concept. "This is about getting the cool factor into the PC product."

That's a tall order, since few computer makers have managed to make a strong case for why their machines are better than the competition – and in an economic slowdown, it can be harder to entice consumers to buy. But with it's number-one global position, the backing of HP's huge research labs and new ideas coming in from folks like Sood, HP may be better positioned than any other company to define the battlefield in the new PC wars.

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