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.
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 “Establish GATEWAY 2000 as a trustworthy company that offered built to
order company, high end quality at low end price”
 TED WAITT
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•
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• How to increase the sell as they were competiting with IBM?


 “Marketing campaign”
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• 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”

•
 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
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• 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.
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•
• New Top Management:
• Company went through a complete organizational change in 1998.
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•
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• A NEW DISTRIBUTION CHANNEL
Ø
Ø Gateways Country Stores
• Goal :
 “To have 80% of US population within 30 min. drive of Gateway country store.”
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 Gateway’s second major
initiatives
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•
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 Trade in two or four year old Gateway
computers
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 Strategies for trade off
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• 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 -$500 for
a 2000 computer
• Customers lack of knowledge for
understanding the price fluctuation.
• Company had no idea what it would
do with the returned computers.
 Strategies for beyond the
box
 50% non systems income was recurring
from financing, service warranties,
training, and Gateway’s ISP deal.
 In 1999 Gateway secured a 20% stake
in NECX direct-Gateway’s stake in
NECX was real in terms of revenue,
but virtual in terms of inventory
 Gateway alliance with AOL-For internet
access
 Final deal was known for joint
development of internet and home
 Real problems with moving
ahead with service strategy
• Leveraging the Gateways distribution
channels in order to market the
various pieces of hexagon-Priority
of channels
• They should grow at which speed
because competitors were-Dell,
Compaq, IBM,HP,Apple and the
success and failure depend upon
core competencies
 Gateways System product
breakdown
Desktops Q1 Q2 Q3 Q4 1999 Total
Revenue($ $1,724 $1,437 $ 1,586 1,760 $6,507
in
Gross 20.6% 20.0% 20.4% 20.6% 20.4%
millions)
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 $1,437 NA
)desktop
price
 Gateways System product
breakdown
Portables Q1 Q2 Q3 Q4 1999 Total
Revenue($ $254 $277 $300 $317 $1,148
in
Gross 20.8% 20.9% 20.9% 21.2% 21.0%
millions)
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 $2,588 NA
)desktop
price
 Gateways System product
breakdown
Servers Q1 Q2 Q3 Q4 1999 Total
Revenue($ $61 $64 $75 $80 $280
in
Gross 24.3% 24% 23.6% 23.8% 23.9%
millions)
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 $5864 NA
)desktop
price
 Gateway Non-System product
Breakout
Other Q1 Q2 Q3 Q4 1999 Total
Hard
Revenue($ 35 70 111 147 363
Ware(Peri
in
Gross 21.5% 21.5% 21.5% 21.5% 21.5%
pherals.etc
millions)
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($ 20 43 68 88 219
in
Gross 45.0% 45.0% 45.0% 45.0% 45.0%
millions)
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
Revenue($ 6 13 22 29 70
and
in
Gross 67.5% 67.5% 67.5% 67.5% 67.5%
financing
millions)
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($ 3 7 11 15 36
in
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($ 0 1 7 15 23
in
Gross 55.0% 55.0% 57.0% 60.0% 56.8%
millions)
margin
Operating Na 30.0% 32.0% 35.0% 35.7%
margin
Number of 200 400 600 1,000 ----
subscriber
s(000’s)
THANK YOU