JULY 15, 2015 • For several years now DFC Intelligence has been examining the positive impact of core gamers on the game industry in general, and the PC game segment in particular. For the most part these core computer game consumers often invest in powerful updated components and hardware systems, with many of them building their own high-end PCs from the ground up. Many large computer makers have sought to feed this market with high-end systems… with mixed results, however. In contrast, one small custom builder, Falcon Northwest Computer Systems in Medford, Oregon, has been successful when other firms have not since the mid-1990s.

As the core market continues to expand, DFC sought to get an in-the-trenches look at where the high-end game PC business is today with the assistance of Kelt Reeves, founder and chief executive at Falcon Northwest.

DFC: Is it true you got your start building flight sim desktops for fellow students back in college? How did that all come about? Tell us how you got Falcon Northwest off the ground in 1992. What was your business model back then and how did you go about getting customers in the beginning.

Kelt: I got my real start in computing at eight years old when my family got a TRS-80 Model 1 for my dad’s work. I of course just wanted to use it to play. Back then you had to code games in yourself out of a book using DOS. It was a lot of work for pitiful “games” that made Pong look like Crysis in comparison. So I can totally annoy my children with the, “you kids have it so easy with your ‘pre-coded’ games” speech.

By 1992, the years of goofing off with games and PCs proved very useful. I was nearing graduation from Embry-Riddle Aeronautical University, but no one needed pilots back then. I figured if I didn’t create my own job I wasn’t going to have one, so I borrowed some money from my parents and set up in a 6’ x 12’ office and built PCs. I was hoping to sell them to my fellow students for the things we all wanted to do: play flight simulators and other games, and of course getting a little schoolwork done. I advertised in the school newspaper, and tried to get some business-focused clients too. I actually went door to door to sign makers trying to convince them that they could use these new-fangled computers to create and cut the vinyl letters for signs that they were cutting by hand at the time. I never convinced a single signmaker. But I can say I’ve sold PCs door to door, which is another “you kids have it easy” story I can annoy my salespeople with.

DFC: Then as now, there have always been garage builders putting together PCs. What did it take to get the message across on your original Mach V model so that Falcon Northwest rose above as a high-end boutique gaming system provider?

Kelt: The early 1990’s was a different time that’s a bit hard to imagine now, even for me. PCs were thought of as expensive tools for businesses, the exact opposite of an Atari or Nintendo. Yes, people played games on PCs, but it was a bit of an underground hobby. There was only one significant publication (remember this is pre-internet) dedicated to gaming on PCs called Computer Gaming World and it was probably less than 100,000 in circulation. I’d read CGW for years, and the single best idea I ever had was noticing that no one had ever advertised a PC in COMPUTER Gaming World. That seems almost silly now, but we advertised in CGW for four years before our first competitor even put a toe in the water.

We were cutting trail with a machete in those early years, and even our customers were often reluctant to admit that they spent so much time playing on this expensive hardware. So for many years, no one else thought PCs built for gaming was a worthwhile market. And that’s where we got our running start. PC Gamer called Falcon Northwest “the company that created the gaming PC.” We weren’t the first to use a PC to game of course, but we were the first company to build and market a PC specifically designed for gaming.

DFC: What did Falcon Northwest look like in the early days? How many staffers worked there, how did you market and how many systems did you build in a year?

Kelt: At the start it was just me in the 6’ x 12’ office, and I mainly worked nights and weekends as I was still finishing up my degree. The biggest leap early on was when my parents purchased a building that the owner was selling because he had some serious health issues. He’d spent four years running a business building PCs for CAD/CAM users. So I took over his customer base, learned a lot about system building from him, and Falcon skyrocketed to three employees.

DFC: Please give us the big picture look at the company today. What are your major product lines, how do you market your products today, how many people work at Falcon Northwest today and how many systems do you sell in a year?

Kelt: We’re into our 24th year now, and are both very different and very much the same as our roots. We do both laptops and desktops, and the desktops are all our own exclusive designs. We now do thousands of systems a year, but that’s a far cry from the hundreds of thousands the mass-market PC builders do. We’re still intentionally a boutique. We still build by hand, torture test every single system for three days, and run several hundred quality checks on each one, and then have a second tech run them all again, by hand. The checklists came straight from my piloting days, and it’s an intentionally hands-on, labor-intensive way of doing things. We don’t have assembly lines and every order is completely custom for each client, right down to the custom paintwork.

We still market a bit to the gaming community, but our biggest growth driver has just come from word of mouth referrals. It’s very gratifying to have clientele happy enough to send their friends our way, and it’s resulted in us reaching far past the gaming community to just about anyone that has need of a quality high-end system.

DFC: Since the 1990s, what has changed about the core PC gamer profile? What is different about what games they play, the systems they like to play on, their age and how much they spend? And on the flip side, what aspects about the core PC gamer remain the same?

Kelt: Well, like me, they’ve gotten older…on average. And while in the 90’s they used to be really excited about upcoming titles like Fallout 2 and Chris Roberts’ next space sim that would need a ton of PC power, today’s gamers are really excited about Fallout 4, and Chris Roberts’ next space sim that will require a ton of PC power.

Actually I love watching the younger gamers getting excited about the same type of games, often from the same series, that I grew up on. The first game I ever typed in on that TRS-80 was a text-based Star Wars game. And seeing the trailers for Star Wars: Battlefront, it’s unreal how far 37 years of technical advancement in PC gaming has come, even if the stories they’re telling are still basically the same.

PC gaming as a hobby has changed just as much culturally, in that “nerdy” pursuits like video games are now solidly mainstream. It’s now very tough to define a gamer, because so many people are gaming in some form or other from phones to tablets to consoles to purpose-built PCs, and often all of them. It’s now more nerdy not to play videogames at all.

The PC enthusiasts have always had a hunger for bigger, better and faster with higher resolution, bigger screens, higher framerates, and better graphics. They’re still the early adopters that will dare with the first-generation products to get a better gaming experience.

The common thread in our customer profile is that they care about the PC itself – it’s not just a toaster. Either they love the hardware itself, or they have a job to do or game to play and value a machine that can do that well.

DFC: What hardware trends over the years have most affected your business, and how so?

Kelt: The big trend has always been the macroscopic Moore’s Law, providing more power for game developers to create ever more immersive gaming experiences. But more specifically, in the past few years it has been the trends of miniaturization of the hardware and Virtual Reality development. We’ve been Oculus’ system supplier for the development and demonstrations of their Rift headsets for several years now, and the ripple effect has been tremendous. We now serve dozens of companies developing in the VR space, both hardware and software. Our Tiki systems have become the VR insider’s standard for a compact but powerful VR demo system.

DFC: What are your guidelines for selecting components for the computers you build, and why? Have there been any changes in that philosophy over the years?

Kelt: Our philosophy for selecting components has always been, “Is it the best?” Price comes up sometime near the end of our testing and evaluation period but it isn’t usually a factor. We don’t build systems to a price point, because our clients choose their own price points for their custom builds. We offer an array of the best components and our clientele will decide which ones are right for them.

DFC: What did the big manufacturers such as Dell, HP, Gateway and others get wrong about producing and marketing high-end game PCs?

Kelt: From our viewpoint, it’s strictly an incompatibility of volume production capability with individual, custom-crafted work. You can’t be all things to all people, and Falcon doesn’t pretend to make low-cost PCs.

The big players are amazing at low-cost manufacturing and high-volume assembly. They’re experts at outsourcing and off-shoring, and never pay another company for the best component if they can make their own in-house part that’s just enough to do the job. But all of that manufacturing capability is of no advantage when you have a client to whom it’s very important to have a system painted with their company logo and corporate colors. Or for the client that wants technical support that speaks their native language and isn’t reading canned answer number four from a book before passing you on to a “Level Two” technician to start all over.

So they’ve taken stabs at reaching the high-end audience, but they expect high-end clientele to adapt to the way they manufacture and support things. Conversely, we’re constantly adapting our production to the way our clients want things. I’m not saying they can’t get it right someday, but what they do and what we do are two very different types of PC building resulting in very different types of products and sales experiences.

DFC: Almost a decade ago Dell acquired Alienware and HP bought VoodooPC. How did these acquisitions change the high-end custom-build business?

Kelt: Mostly they became cautionary tales in enthusiast circles. I don’t know what their original goals were with those acquisitions, but none of those names is synonymous with high-end enthusiast builds anymore. Volkswagen may own Lamborghini, but Lamborghini’s aren’t built, sold, or supported like Volkswagens. I think that’s a corollary that got missed in those acquisitions.

DFC: Since the early days when you started with full-size desktop towers, Falcon Northwest has launched lower profile models such as the FragBox and Tiki. What led you to introducing these models and how have they worked out?

Kelt: The FragBox was the first Small Form Factor enthusiast PC using all industry-standard components. We originally targeted it as a portable system for the burgeoning “LAN-fest” gaming scene in the early 2,000’s. In that respect, we failed miserably. We learned that LAN gamers are almost exclusively DIY builders. I think NASA bought more FragBoxes than LAN gamers did. In that respect, we succeeded very well.

Today the FragBox still sells disproportionately to corporate, military, and special applications buyers. And the Small Form Factor segment it helped create is now so strong that it’s become segmented. When we developed Tiki, we thought it would kill the FragBox because it was less than one-half the size. So we discontinued the FragBox, and promptly heard it from some very important customers there was still a need for a Small Form Factor than could handle two graphics cards.

Tiki was my most involved design project, and its goal was simply to take an enthusiast PC and boil it down to its smallest possible footprint… which turned out to be anything but simple. Tiki was the first industry-standard enthusiast Micro-Tower. It’s been our fastest growing model, and every year it gets more capable.

DFC: Who buys a Mach V versus a FragBox versus a Tiki, and why?

Kelt: The Mach V is our largest, most capable system. It’s for those who really need three graphics cards for extreme 4K resolution gaming, or eight SSDs for massive video serving. FragBoxes are for those that need semi-portable power. Our Talon model is a traditional mid-tower design and appropriate for just about everyone. Our Tiki micro-tower is frankly the PC design of the future. Tiki is only four inches wide and 13 inches tall, but it can fit up to an 18 core Xeon CPU, 64 gigs of DDR4, the fastest graphics card in the world, and eight Terabytes of storage. Most people think of Small Form Factors making sacrifices, but honestly unless you need multiple graphics cards, most people would be hard pressed to need a physically larger PC than a Tiki these days.

DFC: How much of your audience is getting your systems for usage outside of games such as business users or general high-end performance users?

Kelt: Our roots are still in gaming, and for the majority of our clients gaming is still the main reason for the high-end hardware. But these days more than a third of our clientele are businesses, military and government, universities and research institutions, game developers and other visual arts related companies. We haven’t changed our focus, but there is now a wide spectrum of need outside of gaming for powerful, custom-built PCs. The hardware needed to run Shadows of Mordor well is surprisingly similar to what’s needed by aerospace companies that make unmanned aerial drones.

DFC: What is the market for gaming laptops today, and how do the DRX and TLX models fit in the trends?

Kelt: We’ve always been primarily a desktop shop, and as the desktops have gotten smaller the result is some of the space-saving purchase decisions for gaming laptops are falling by the wayside. We’ve seen our tradeshow presenter market, especially in VR, shift almost entirely to Tikis since they’re small enough to fit in a backpack to schlep in and out of a show. There are of course still applications for gaming focused laptops, and they are incredibly powerful in their own right. But laptops are a smaller part of our business these days.

DFC: Tell us more about the custom painting business. How did you get started with such customizations and how big an option is that for your clients? How extravagant do these paint jobs get?

Kelt: Back in 2001, most PCs were still beige steel and plastic, including ours. Dale Earnhardt Jr. the NASCAR racer was a client of ours, and a show on MTV called “Cribs” toured his house and he showed off his new all-Falcon gaming room setup where he’d run racing sims. But all you could see of our machines were the mousepads – he’d tucked the systems away in the desks that had cubbies to hide the systems. Our PCs were nothing very special to look at back then. But we had just recently switched to the sexy new aluminum case designs that were starting to hit the market, and we thought next time Dale Jr. shows off his Falcons on national TV we want him to have something he’ll be proud to display on his desk. So we took a chassis down to the local auto painter and asked if he could paint a Mach V to look like Dale Jr.’s famous red #8 Budweiser car. We’ve expanded our artistic capabilities a lot since then, but that was the PC that started us down the path of making PCs into works of art.

An epilog to that story: I met Dale Jr. at a tradeshow not long after we’d sent him that PC and asked him how he liked it. We’d stuffed it full of the latest barely-released gaming hardware. He said he loved how it looked so much that he’d put it in his trophy case… and had never actually turned it on.

Our custom painting is one of our best options for clients who want their system to be an expression of their own taste. We do everything from basic corporate logos to gamer tags to massively time-intensive original works of airbrush art. Most paintwork runs around $500, but some of the truly custom airbrush works can run $2,000 or more.

DFC: Do it yourself game PC building has been around for a long time. But where it used to be about best bang for your buck or out benchmarking your pals, hobbyists have embraced component and case bling. What are your thoughts on the evolution of the build your own PC market? Has it grown, or not, and why? Are there fewer gamers building PCs today, but perhaps spending more per build? Is that a threat to Falcon or is it too small a niche to worry about?

Kelt: The DIY market is always tough for us to gauge because by definition it’s a market that doesn’t buy our systems. Some of the nicest compliments we ever receive, however, are from clients who were former DIY builders who are now too busy. They came to us because they don’t have the time anymore, or just really want someone to call when something isn’t working right, and saving a little building it themselves isn’t the priority anymore. The highest praise we get is when those folks admit to us that we did a nicer job on the cabling and build than they could have done themselves.

DFC: What are the current trends in components for game systems? What are your clients clamoring for in their cases?

Kelt: PCI Express storage is the revolution happening right now. It’s literally three to four times the performance of the best SATA SSDs. Unfortunately there’s only a couple of these new drives on the market, and the vendors making them have done a poor job getting the word out to the masses. It’s also fairly complex technically, and expensive, so it’s a little tough for DIY builders to integrate themselves. So word about PCIe storage is spreading very slowly, but it’s what everyone should be clamoring for right now – it’s that good.

DFC: What is going to be the next big development in game PCs, either in components, design requirements, or both?

Kelt: The ability to run VR headsets well is going to become a defining line in gaming PC design requirements very soon. Oculus made real waves when they announced their Q1 headset launch would require a pretty serious PC to run it: a GeForce GTX 970 and a fast quad-core CPU as a minimum spec. Of course having done much higher end systems for Oculus themselves for some time now, the requirements didn’t surprise us in the least. But evidently many people were taken aback by the amount of power VR headsets will require. And that system power will need to increase by an order of magnitude as the headset resolutions increase over the years. The leap from 1080P to 4K resolution requires a massive increase in system power, but after you see 4K in person, it’s hard to go back.

DFC: Over the years you have been concerned about sound insulation in systems and noise output from components. Has reducing noise become an issue with your clients and how far do you think you still need to go in this area?

Kelt: I want my PCs to be silent. It’s a goal that I’m constantly wrestling with the realities of system integration on. In the late 2000’s, component manufacturers were pushing the power limits of everything. Between the CPUs and multi-GPU setups they were requiring 1,200 and even 1,500-watt power supplies and approaching the limit of what household circuits could handle. The fan noise required to dissipate all that power, and resulting heat, annoyed me (and many of our clients) greatly. I grumbled to every one of our suppliers that would listen that they were heading for a brick wall in that soon they’d be tripping circuit breakers.

Today I’m happy to report that the major component vendors have done an amazing job in focusing on the power efficiency of their designs. Today’s enthusiast PCs run so much cooler and quieter than systems from three to five years ago. Tiki’s baseline 450-watt power supply is enough for all but the highest end loadouts, usually with 100-watts or more of headroom to spare.

I still have a picture from about five years ago of a GPU vendor’s thermal engineer using my oven mitt to remove his graphics card from a system. They used to get so hot I had to keep one around. I’m keeping that photo for blackmail purposes should the GPU guys ever let the power requirements creep too high again.

DFC: Does Falcon Northwest have any direct competitors today, and if so, what sets you apart?

Kelt: They rotate every few years, but we’ve always had several boutique-type competitors. Our advantages have always been in personal service and an unmatched level of customization. And we’re still the only boutique designing all of our own chassis. Others primarily use the same off the shelf cases any DIYer can get. You won’t find Falcon designs anywhere but here. But our greatest advantage is in our experience. The majority of my staff has been with the company for more than a decade. It makes a huge difference when the people building and supporting your system have been doing it much longer than the other companies have been in business.

DFC: Some major retailers like Wal-Mart have promoted the build your own gaming PC through CyberPower? Is this competition for you or does it show general broadening of the market?

Kelt: I actually had never heard of that, so I guess there’s not much overlap between the Falcon buyer and Wal-Mart PC buyer.

DFC: Our experience shows us most core gamers are cross-platform players between PC, console and mobile. How has this affected your business and how have you had to adapt?

Kelt: My first console was an Odyssey. I still run a PlayStation and an Xbox, and have a half-dozen old consoles in the garage. I grew up on them alongside PC gaming, but I still use them occasionally.  Good games are on every platform, and these days the same titles are usually released cross platform. And generally, the PC version looks the best.

But 4K resolution is a line in the sand for today’s consoles. They just don’t have the graphics horsepower to run 4K, and won’t for the foreseeable future. It takes a serious PC to get a smooth framerate at 4K, and usually multiple GPUs. While we’re on the leading edge of the shift to 4K now, 4K TVs are down to $700 at Costco. In a few years 4K TVs in the living room will be commonplace, and the current 7-year console refresh cycle won’t have caught up to it. Gamers have always demanded higher resolution, and the PC is going to be the only way to really power 4K experiences for the next few years.

DFC: What concerns you most about the PC hardware business moving forward, and why?

Kelt: Actually I’ve never been more optimistic about the enthusiast PC market than I am right now. There are so many factors pushing for high-end PC adoption now and in the next few years: Virtual Reality, 4K resolution and upcoming killer apps like Star Citizen and Star Wars: Battlefront. And there’s a corresponding list of amazing new hardware advances hitting with new GPUs, CPUs, PCI Express storage, and of course Windows 10 which will upgrade the entire PC gaming ecosystem with DirectX 12. We’re seeing a huge convergence of reasons you’ll need an enthusiast PC in the coming years. We’re already seeing the first wave of early adopters getting ready for these advances, and the future of enthusiast PCs has never been brighter.