GATEWAY: MOVING BEYOND THE

BOX

By:
Shashank Chauhan (S6052)
 BACKGROUND

• In 1985 TED WAITT was able to sell a $3,000 computer in a 20 minute

phone call.
• Telephone based computer retail business.
• Eliminated retail distribution cost, finished goods inventory & showrooms.
• Fellow sales man MICHAEL HAMMOND signed to help TED WAITT.
• 1987 renamed GATEWAY 2000 earned revenue $1.5 million.
• 1988 revenue grows to $12 million.

“Establish GATEWAY 2000 as a trustworthy company that offered built to order

company, high end quality at low end price”
TED WAITT
• How to increase the sell as they were competiting with IBM?

“Marketing campaign”

• Solution works.

• 1991 Inc. magazine named Gateway 2000 the fastest growing private
company in nation with $626 million annual sales & 1,300 employees.

• Core idea “great service & a great marketing strategy”

 SALES($)
10,000
8,965
9,000
8,000 7,703
7,000 6,294
6,000
5,035 SALES($)
5,000
4,000 3,676
3,000 2,701
2,000
1,000
0
1994 1995 1996 1997 1998 1999
 DIRECT & INDIRECT CHANNELS
• The Telephone Channel:
• GOAL:
“How do we build the right system for you”

• 1999 Gateway automated its voice response system to save money and
increase channel efficiency.
• Sales representative helps customer assemble customize computer.

• Sales representative were expected to sell $150,000 to $160,000 in

company 24 annual sales cycle.
• Profit margin shrank due to competition they begin to sell the add-ons
(peripherals, extended warranties, software)
• Gateway.com

• GOAL
“Intact customer through phone or website instead of loosing it to Dell
or Compaq”

• Employed 100 online support personnel in Kanas city to provide:

- sales processing
- follow up
- technical support &
- answer e-mail.
 PROBLEMS

• Competition had driven prices & profits down.

• Trouble in attracting top executives & engineering talent to its Sioux
city, Iowa headquarters.
• Y2K problem.

• What to do?
“A complete makeover of just about everything of Gateway’s operations”
TED WAITT
 STRATEGIES
• A New Corporate Image:
• 1998 Gateway dropped the “2000” from its name & trademark Holstein
cow from TV.
• Print adds in order to attract more customers.

• A New Location:
• 1998 shifted into new administrative headquarters in San Diego, California
from Sioux City.
• There they can attract engineers & executives.
• New Top Management:
• Company went through a complete organizational change in 1998.

• A NEW DISTRIBUTION CHANNEL

 Gateways Country Stores

• Goal :
“To have 80% of US population within 30 min. drive of Gateway country store.”
Gateway’s second major initiatives

Trade in two or four year old Gateway

computers
 Strategies for trade off

• Software and/or peripheral bundles

• Finance facility
• Internet access through gateway.net
• Service warranties
 Reasons for failure
• Gateway ware unable to find out actual buyer
who visited the site.
• Uncertainty of ROI for Fixed investment
approx $400 -$500 for a 2000 computer
• Customers lack of knowledge for
understanding the price fluctuation.
• Company had no idea what it would do with
the returned computers.
 Strategies for beyond the box
• 50% non systems income was recurring from
financing, service warranties, training, and
Gateway’s ISP deal.
• In 1999 Gateway secured a 20% stake in NECX
direct-Gateway’s stake in NECX was real in terms
of revenue, but virtual in terms of inventory
• Gateway alliance with AOL-For internet access
• Final deal was known for joint development of
internet and home networking appliences
 Real problems with moving ahead with
service strategy
• Leveraging the Gateways distribution channels
in order to market the various pieces of
hexagon-Priority of channels
• They should grow at which speed because
competitors were-Dell, Compaq, IBM,HP,Apple
and the success and failure depend upon core
competencies
 Gateways System product breakdown
Desktops Q1 Q2 Q3 Q4 1999 Total
Revenue($in $1,724 $1,437 $ 1,586 1,760 $6,507
millions)
Gross 20.6% 20.0% 20.4% 20.6% 20.4%
margin
Operating 6.6% 5.8% 6.1% 7.4% 6.5%
margin
Units 987 883 1099 1225 4194
sold(000’s)
Average $1,746 $1,626 $1,444 $1,437 NA
desktop
price
Gateways System product breakdown
Portables Q1 Q2 Q3 Q4 1999 Total
Revenue($in $254 $277 $300 $317 $1,148
millions)

Gross 20.8% 20.9% 20.9% 21.2% 21.0%

margin

Operating 6.8% 6.0% 6.9% 7.4% 6.8%

margin

Units 87 110 123 123 443

sold(000’s)

Average $2,931 $2,512 $2,430 $2,588 NA

desktop
price
Gateways System product breakdown
Servers Q1 Q2 Q3 Q4 1999 Total
Revenue($in $61 $64 $75 $80 $280
millions)

Gross 24.3% 24% 23.6% 23.8% 23.9%

margin

Operating 10.3% 9.5% 9.3% 10.0% 9.8%

margin
Units 11 10 12 14 47
sold(000’s)
Average $5,584 $6,377 $6,034 $5864 NA
desktop
price
 Gateway Non-System product
Breakout
Other Hard Q1 Q2 Q3 Q4 1999 Total
Ware(Perip
herals.etc)
Revenue($in 35 70 111 147 363
millions)
Gross 21.5% 21.5% 21.5% 21.5% 21.5%
margin
Operating 4.5% 4.5% 4.5% 4.5% 4.5%
margin
 Gateway Non-System product
Breakout
Software Q1 Q2 Q3 Q4 1999 Total
Revenue($in 20 43 68 88 219
millions)

Gross 45.0% 45.0% 45.0% 45.0% 45.0%

margin

Operating 28.5% 28.5% 28.5% 28.5% 28.5%

margin
 Gateway Non-System product
Breakout
Service Q1 Q2 Q3 Q4 1999 Total
warranties
and
financing
Revenue($in 6 13 22 29 70
millions)

Gross 67.5% 67.5% 67.5% 67.5% 67.5%

margin

Operating 44.5% 44.5% 44.5% 44.5% 44.5%

margin
 Gateway Non-System product
Breakout
Training Q1 Q2 Q3 Q4 1999 Total
Revenue($in 3 7 11 15 36
millions)

Gross 45.0% 45.0% 45.5% 45.5% 45.5%

margin

Operating 8.0% 8.0% 8.0% 8.0% 8.4%

margin

Number of 1,400 1,900 2,400 4,000 2,425

sales
 Gateway Non-System product
Breakout
ISP/Portal/ Q1 Q2 Q3 Q4 1999 Total
Other
Revenue($in 0 1 7 15 23
millions)

Gross 55.0% 55.0% 57.0% 60.0% 56.8%

margin

Operating Na 30.0% 32.0% 35.0% 35.7%

margin

Number of 200 400 600 1,000 ----

subscribers(
000’s)
THANK YOU