Interview: Gateway execs discuss makeover plans

Having already ditched its trademark cow logo, Gateway might want to consider the octopus for its next marketing campaign.

The company is embarking on a multipronged strategy to transform itself into both a consumer-oriented electronics vendor and a business-oriented server and storage vendor, while still maintaining its core PC business that has been battered by competition and a slumping economy. As part of that strategy, the Poway, California, company will introduce 50 new products this year, from handhelds to four-way servers, while it cuts costs in hopes of returning to profitability.

The company discussed its upcoming products and strategies with IDG News Service while Mike Stinson and Scott Weinbrandt visited New York this week for the inaugural CeBIT America conference. Stinson, vice president and general manager for mobile products, and Weinbrandt, general manager for the systems and networking group, along with Gateway spokesman Ted Ladd, talked about the challenges and opportunities that lie ahead for the company.

IDGNS: Why did Gateway wait so long to come out with a PDA?

Stinson: I think it’s a combination of things. Really, we were waiting for the right combination of being able to see what customers were looking for. We’re very interested in how these products evolve into more connected devices, how they start to incorporate 802.11 or cellular technologies, and just seeing the component costs come down to a point where we thought it made sense for a broader market. If you go back two years, these features are going to cost $600-$700.

IDGNS: Is there just one model you’re going with at launch?

Stinson: On this product, there’s just one version of it. You will see some products in the future from us, later this year.

IDGNS: Some analysts think that the recent decline in PDA sales is indicative of a trend where people are more interested in devices like smartphones, devices with voice capability. Is Gateway looking at these types of products?

Stinson: We’re definitely looking at those devices, but we don’t have one that we’re ready to talk about. It’s all part of being able to offer a more complete suite of products, both to consumers and to business. This is just one piece of that.

IDGNS: Will you market this PDA to consumers as well?

Stinson: Sure. Particularly in PDAs, you see a lot of individuals buying them and using them for business purposes. They’ll be available in all channels.

IDGNS: What is Gateway’s strategy for winning over business customers?

Weinbrandt: We relaunched our systems organization in February. Business customers are asking to have to the opportunity to buy their products and services from one vendor.

Gateway has been in the server business and the storage business for many years, but not to the point that we are today. We’re making significant investments in our sales organization and our product portfolio. We’re offering dedicated services around the systems arena, and managing a supply chain and a factory that is built around complex products.

There are many areas of the company that we are making significant investments in that we haven’t done historically. Where we continue to head in terms of portfolio development is to drive the greatest amount of computing power in a very dense form factor.

The advantage we have over our competition is that we’re starting out with a clean slate. We don’t have many floor-standing products that we have to continue managing over time. Spare parts, customer service and support, and migration, those are all issues that our competition will have to deal with as they manage total cost of ownership in that customer’s environment.

There has been a consolidation where there’s really only two vendors that are actively driving the majority of market share, and that’s Dell and HP. The benefit for us is that leaves a huge window of opportunity to take share and gain share given that those two companies own a little over 50 percent of the market share, and the rest is by white-box companies or third-tier companies.

Customers are asking for another tier-one vendor to be in this market today. That’s really how we’re getting pulled into a lot of opportunities, is competing head to head with the two companies I mentioned previously. We don’t believe we’re going to displace them immediately, that’s not our strategy.

I’ve had a Dell customer tell me, “If nothing else, your re-entrance into the server market has given me better pricing and better support.”

IDGNS: One company you neglected to mention was IBM. How can you not worry about them as well when you look at this market?

Weinbrandt: We look at market data, and what IDC and Dataquest are telling us today, at least for the last quarter, is that IBM has lost significant market share in the under-$2,500 Intel server market. I think that’s by choice. IBM has shown that they are focused on outsourcing, services, and the Big Iron and software markets. It’s pretty evident in the marketplace and with customers that have done business with them historically that they are not driving aggressively to be a constant competitor in this market.

IDGNS: One thing you had mentioned was your experience with Dell in taking a PC company up the food chain. But one advantage that Dell had was that it was really a business-focused company when it started to do that, and Gateway is not, or has not historically been. How do you switch your company’s image from a consumer-oriented company to a corporate-oriented company?

Weinbrandt: We will definitely take the lead in by representing ourselves not only with desktop and mobile products that are dedicated and designed for the business customer, but most definitely with systems level products. We’ll also offer the service and support and the relationship management, the things that truly come to play when dealing with business customers as a whole. It’s really about having the portfolio, and it’s a face-to-face relationship kind of activity.

Ladd: We’ve brought in a bunch of people to focus more on this business segment, people like Scott. We also feel like the brand does cross over in some places. We see small and medium-size businesses (SMBs) using the stores, and SMBs with under 20 people tend to use the stores more than anything else. And Gateway’s not going after the same customers that a lot of the other companies are going after.

Weinbrandt: No, we’re truly not. Dell and HP are definitely going after the traditional, very large enterprise companies. And while we do touch the low-end of some of those larger companies, that’s not our primary focus from a business perspective. There’s a huge market opportunity for us to go after the traditional SMBs and the institutional sector, which is the government, education, and medical health care, as well as in the lower end of traditional corporate environments.

IDGNS: What does Gateway have that business customers want?

Weinbrandt: As I mentioned earlier, having people face-to-face, a relationship management team that walks in the door, is a huge plus. For example, in my business we’re putting dedicated systems consultants out in the field that will work face-to-face and represent that management team from a systems perspective. They are 100 percent dedicated from a compensation perspective and a job description to selling systems-level products.

The complexity of the business basically requires a different touch, and that’s part of the core competency that we bring to the table, is the level of high-touch that we’ve offered for many years and that customers truly value. That’s what’s fading in the industry from our competition. They’re (customers) not getting the same level of high-touch, that relationship management, that traditional services and support.

Stinson: We have a very strong custom integration service that can really do just about anything a customer wants, from loading our software onto their system, testing their load, or integrating third-party software. We’ve gone as far as engraving company or school logos on the lids of notebooks, if that’s what they want.

And probably the big difference, as Scott alluded to, is not that other companies can’t do it, but we’re maybe willing to do it at a smaller size organization, providing services to a company that maybe isn’t spending as much or maybe isn’t willing to commit as much as the larger guys want in order to get these services. Because we’re trying to take market share, we’re maybe being a little more flexible.

IDGNS: What will carry more weight toward bringing Gateway back to a profitable company, the focus on consumer electronics goods or the focus on gaining business customers?

Stinson: I don’t think we think about it that way. If you look at what we talked to the analysts about, it’s really that there are a lot of different pieces. This isn’t a plan that has one, two, or three pillars to it, there are a lot of different pieces to it, all milestones that we’ve laid out there.

As important, which we didn’t talk about, are the cost initiatives to make sure that our balance sheet is healthy and we’re capable of returning to profitability. All those things have to come together. It’s more about executing the plan than about any one part of the plan being the silver bullet.

IDGNS: It’s a complicated plan, though.

Stinson: Yeah, it is. But I think if you look at the pieces, all of the pieces have been broken down into what we would call manageable pieces. And the difference is we’ve got identified general managers that are business process owners that have a clearly defined set of milestones that they’ve got to hit. Scott’s got his, I’ve got mine, the guys that run the storage have theirs, the TV guys have theirs, so it’s not like there’s one guy that has to hit a home run. All the people are fairly seasoned and accomplished, know what they have to do, and it’s doable.

Ladd: And it’s not like we don’t have a head start. We had a great launch of the plasma TV, the servers are starting to gain traction, the brand is starting to carry over into some of these other products, and there’s a huge demand for this kind of high-touch service.

Stinson: Let me draw it for you two ways. I think we’ve said publicly that the TV business has the potential to be as big as the PC business. That makes it incredibly important, right? We’ve also said publicly if we were 60-65 percent business right now, we’d be profitable. So that makes business incredibly important.

Neither one of them is overwhelming. So if we execute of both of them, we’ve got an extremely healthy, strong business.

IDGNS: And you think there’s still room for a focus on PCs with that?

Stinson: Absolutely. The PCs are the core that the company is built around. The fact that we’re going to sell more of other things doesn’t diminish the importance of the PC.

Weinbrandt: It actually pulls the PCs with it.

Stinson: Right. Every time we sell a server, and I don’t know if we’re giving out the number publicly, we know very directly that we sell a lot of desktops. Every time you sell a mobile or a server, you get account control, and that helps you sell more desktops. All of those desktops help you grow your scale, and spread your costs. This isn’t about selling less PCs at all.