The Decline of Gateway...What Happened?

[Music] gateway computers remember them and they were pretty popular for a while long ago that is what i call a brutally honest statement i don't know just something about it maybe it's that long ago tacked on at the end i'm just saying if i were someone from gateway i would feel pretty crummy after reading that but it's hard to deny that's a request that someone submitted for this topic and it's not the only one some people watching this may barely remember them or not know about them at all but gateway was once one of the largest pc makers in the united states in 2004 they were behind only dell and hp in terms of market share and if you know anything about the pc market at that time you would know that those two were pretty untouchable so number three was realistically the highest they can hope to be the thing that many people remember about them is the cow pattern it was kind of their thing it was part of the logo it was in their branding and the thing that sticks in my head is that if you ordered a new gateway computer it would come in a box with a cow pattern on it talk about unique marketing and there's nothing else like it i mean it's a computer box and i remember it from 15 years ago and without context it doesn't make any sense i can't think of any possible way to relate cows and computers that cow pattern stems from the fact that gateway started on a cattle farm let me explain ted weight is the main guy behind it in 1985 at age 22 he dropped out of college and spent a few months working in a computer store that's where he learned all about the industry and came up with a few ideas on which he felt he could build his own business one of these ideas it's similar to what dell would become known for he felt you could cut out a lot of unnecessary costs by selling directly to the consumer over the phone those lower costs allow the computers to be sold at a lower price and plus dealing directly with the customer helps build relationships they're more likely to come back for future orders the other idea he had was to focus on providing value to the customer his plan was to make computers with the exact capabilities and features that people wanted and nothing more that way people weren't paying for stuff that they didn't want nor were they lacking something that they wanted he had some cool ideas but we have to remember this is a 22 year old college dropout not in much of a position to start his own business he got together with a friend from that computer store named mike hammond mike was more of the technical guy and ted was more the business guy the two of them got a ten thousand dollar loan from white's grandmother and set up an office in an empty area in his family's cattle farm in iowa they called the business tipc network and started by selling add-ons for texas instrument computers which turned out to be a high demand low supply market they sold over one million dollars worth of them the next year ted brought on his brother norm as a partner to handle the financial end of things and changed the company's name to gateway 2000 they later dropped the 2000 part of it now considering this was three guys all college dropouts by the way starting in a farm in the middle of iowa they were doing pretty well but they weren't really selling computers like they wanted and they were still pretty small in comparison to what they would become something big had to happen in 1987 they started selling computers see texas instruments started selling these new computers unlike the old models these were ibm compatible and they had a price tag of about 3 500 as long as you would trade in your old model ted and his crew looked at this and they realized that they can do better he implemented all of those ideas that he had been dying to use and it resulted in something very similar that they were able to sell for 2 000. to promote it they bought ads and newspapers and magazines and used the line computers from iowa which i think is great it's taking something that some may see as a disadvantage and embracing it showing that everything is made in america and giving them this honest midwestern hard-working type image that's where the cow pattern stems from which is promoting that same image if you're selling something that's just as good as the competitor at a fraction of the price you're probably going to sell a lot of them which is what happened from here the entire company just took off they became one of the fastest growing companies in the world in 1987 their sales were 1.5 million in 1988 their sales were 12 million in 1989 their sales were 70 million in 1990 their sales were 275 million in 1991 their sales were 626 million and in 1992 they were 1.1 billion they essentially went from a million dollars to a billion dollars in six years in 1993 they became a public company when they sold 15 percent of their equity for 150 million dollars and ted and his brother norm remained equal partners splitting the other 85 percent the intention of the offering was to raise some money to further help their expansion into new products and into new countries they were specifically concerned with europe in 1996 they became the first major pc company to provide the option of buying a custom-built computer over the internet fancy stuff that same year they opened these gateway stores that didn't hold inventory but they allowed customers to go in and test the computers and maybe talk to a salesman about them they opened hundreds of these stores within the next few years all of these efforts caused their sales to continue growing every single year through the end of the decade now on to the fall here's their sales for the next few years they fell tremendously in 2001 and never made any kind of significant recovery their income struggled so did their stock price the highest price they reached in 2000 was 72 dollars a share and that fell down to 18 within the same year by the end of 2002 it was down to almost three dollars i can give more proof of this decline but it's not necessary no one's denying that it happened and i think there's numerous reasons behind this but let me try to highlight some of the main ones pc market troubles possibly the biggest factor is that this was a bad time for the pc market there was a higher supply of them than there was a demand which is not good for the people supplying them there were so many companies competing in this market now plus the pcs that were being offered this year weren't impressive enough to justify replacing the old one it led to lower sales across the board and bad times for gateway companies reacted to this differently gateway took it as an opportunity to switch some focus to consumer electronics like plasma screen tvs which weren't very profitable plus they mostly pulled the plug on it a few years later so it was kind of just a waste of time they were slow to enter the laptop business this wasn't a time when laptops were rapidly increasing in popularity over desktops so obviously as a computer company it would have been smart to follow that trend well gateway was a little slower than most of their competitors for example in 2002 gateway was selling 3.5 desktops for every laptop while dell was selling two desktops for every laptop dell was selling a higher percentage of laptops moving to california in 1990 their headquarters had moved from iowa to south dakota and in 1998 they moved it to california they felt that it was the right thing for a computer company to do that's just where everything's happening they could attract better managers the investors might develop a different perception but that new setting helped change the culture of the company they became less concerned with providing value to the customers and more concerned with meeting short-term goals ted waite himself has said the thing i would definitely do over again is the whole san diego thing that was probably the single biggest mistake new leadership shortly after the move to california in late 1999 gateway changed their leadership for the first time ever ted waite stepped down and this new guy jeff whiteson stepped in and we can also blame him for this culture shift along with some strategic decisions that didn't seem to be too good he cleared out some of the existing executive team that had been there during all of the successful years and replaced them with new people he was also in charge when the number of gateway stores hit their all-time high in 2000 and by the way in early 2001 ted weight came back and basically reversed most of these changes accounting fraud that's never good in the year 2000 the sec started investigating the short-lived ceo jeff whiteson along with some other high-ranking members under suspicion that they pulled some shady accounting tricks in order to inflate their revenue and meet earnings expectations things were going bad and they felt they needed to cheat a little bit to make things look better the stock market always has bad reactions to these things and rightfully so the e-machines acquisition in 2004 gateway bought the computer maker e-machines in a deal that was valued around 300 million dollars the acquisition increased their market share and made them the third largest pc maker in the u.s once again but it also caused some changes within the company for one ted waite stepped down as ceo again and soon after ended his involvement entirely the ceo of e-machines became gateway's new ceo the two companies had entirely different approaches as to how they sold their computers e-machines was exclusively through third-party retailers best buy walmart places like that and of course gateway sold directly to the consumer that was ted white's vision since before gateway even existed now with ted weight's gone and e-machines management running things they switched focus which obviously they were in need of something to save them but this was abandoning one of the core principles in which the company was built not so sure that was a great idea acquisition by acer and the damage is mostly done by this point so this is more just to finish the story in 2007 gateway was acquired by the much larger pc company acer the price they paid was 710 million dollars which was generally seen as being way too high gateway had lost over 98 percent of their value since 2000 and their shares were trading at one dollar and 21 cents on the market the acquisition price was a dollar ninety per share acer thought it was worth it to pay that premium because in multiple ways it helped give them an edge over their primary competition lenovo acer still owns the brand today but it does not look like they're doing much with it they discontinued e-machines in 2013 and continued gateway for a little longer but for now anyway i think we can say gateway is effectively non-existent let me know in the comments do you agree with the reasons i provided for their decline there's so much more that can be said but i like to think i hit on the main points the way i see it they should have just kept calm those core principles worked for years but as soon as they ran into any trouble it seems they completely panicked and just changed everything new models new products new leaders new locations i think they should have taken a lesson from those tony hawk games do you know when you're in the manual and you have to adjust that arrow a little bit at a time too big of an adjustment and you get all unstable and fall actually i suppose it's the same principle if you're actually skating but i relate to the game better that's what gateway should have done they had that arrow flying around like crazy when maybe all they needed to do was keep calm and just make those little adjustments gateway hasn't been relevant for i don't know a good 15 years now so do you even remember them now i know they weren't ever regarded as the best computers out there but that cow design sure made them different and their direct to consumer model helped them build that loyal following so what was your perception of them at the time and how has that perception changed over the years i'd like to hear what you have to say thank you for watching

Channel: Company Man

Views: 356,202

Rating: 4.9676332 out of 5

Keywords: Gateway, Dell, HP, Computer Companies, Business

Id: e3DQAmpsim4

Length: 12min 7sec (727 seconds)

Published: Wed May 12 2021