Gateway Moving Beyond The Box

GATEWAY: MOVING BEYOND THE BOX • • •   

By:

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Chauhan (S6052)

Shashank

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

• 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 • • Competition had driven prices & profits down. • Trouble in attracting top executives & engineering talent to its Sioux city, Iowa headquarters. • Y2K problem. • • What to do? 

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“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

Ø Ø Gateways Country Stores • Goal : 

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“To have 80% of US population within 30 min. drive of Gateway country store.”

Gateway’s second major initiatives • • • 

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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

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 Revenue($ $1,724 in Gross 20.6% millions) margin Operating 6.6% margin Units 987 sold(000’s Average $1,746 )desktop price

Q2 $1,437 20.0% 5.8% 883 $1,626

Q3 $ 1,586 20.4% 6.1% 1099 $1,444

Q4 1,760 20.6% 7.4% 1225 $1,437

1999 Total $6,507 20.4% 6.5% 4194 NA

Gateways System product breakdown Portables Q1 Revenue($ $254 in Gross 20.8% millions) margin Operating 6.8% margin Units 87 sold(000’s Average $2,931 )desktop price

Q2 $277 20.9% 6.0% 110 $2,512

Q3 $300 20.9% 6.9% 123 $2,430

Q4 $317 21.2% 7.4% 123 $2,588

1999 Total $1,148 21.0% 6.8% 443 NA

Gateways System product breakdown Servers Q1 Revenue($ $61 in Gross 24.3% millions) margin Operating 10.3% margin Units 11 sold(000’s Average $5,584 )desktop price

Q2 $64 24% 9.5% 10 $6,377

Q3 $75 23.6% 9.3% 12 $6,034

Q4 $80 23.8% 10.0% 14 $5864

1999 Total $280 23.9% 9.8% 47 NA

Gateway Non-System product Breakout Other Q1 Hard Revenue($ 35 Ware(Peri in Gross 21.5% pherals.etc millions) margin Operating 4.5% )margin

Q2 70 21.5% 4.5%

Q3 111 21.5% 4.5%

Q4 147 21.5% 4.5%

1999 Total 363 21.5% 4.5%

Gateway Non-System product Breakout Software Q1 Revenue($ 20 in Gross 45.0% millions) margin Operating 28.5% margin

Q2 43 45.0% 28.5%

Q3 68 45.0% 28.5%

Q4 88 45.0% 28.5%

1999 Total 219 45.0% 28.5%

Gateway Non-System product Breakout Service Q1 warranties Revenue($ 6 and in Gross 67.5% financing millions) margin Operating 44.5% margin

Q2 13 67.5% 44.5%

Q3 22 67.5% 44.5%

Q4 29 67.5% 44.5%

1999 Total 70 67.5% 44.5%

Gateway Non-System product Breakout Training Q1 Revenue($ 3 in millions) Gross 45.0% margin

Q2 7

Q3 11

Q4 15

1999 Total 36

45.0%

45.5%

45.5%

45.5%

Operating 8.0% margin

8.0%

8.0%

8.0%

8.4%

Number of 1,400 sales

1,900

2,400

4,000

2,425

Gateway Non-System product Breakout ISP/Portal/ Q1 Other Revenue($ 0 in Gross 55.0% millions) margin Operating Na margin Number of 200 subscriber s(000’s)

Q2 1 55.0% 30.0% 400

Q3 7 57.0% 32.0% 600

Q4 15 60.0% 35.0% 1,000

1999 Total 23 56.8% 35.7% ----

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