As consumers become even more comfortable with PCs, they may become more willing to dip into no-name cheapies. But snipers aren't just taking shots from the lower end. "The pricing delta is narrowing. We're coming after them," vows Michael Dell, chairman of Dell Computer, which is expected to post nearly $800 million in sales this year. "And we're not exactly Little Bo Peep."
The pioneer in selling cheap computers by phone, Dell says he came to the realization as far back as 1985 that counting on price "becomes a zero-sum game after a while. Those customers are likely to be less loyal. It's hard to sustain a company on that." Dell has since added a sales force to call on the Fortune 500 entities and government agencies that provide roughly half of his business; he even sells computers through retail superstores.
Gateway isn't concealing its own desire to penetrate the profitable corporate market. This past fall, its ad depicted starchy executives, brows all a-furrow, huddled around their prized Gateway. Clearly the accompanying slogan, "Because we've stood the test of time," was designed to appeal to the conservative instincts of a corporate type. As of September, four ads Waitt had designed expressly for BusinessWeek remained "in limbo," according to Gross. Around that same time, Gateway began releasing some quarterly financial results in press-release form. "People don't realize that Gateway is a real company," says Rick Snyder, executive vice-president. "We don't want people to think we are just a revenue generator."
But changing what people think -- and the mix of consumers who buy -- is likely to take more than aggressive marketing. "To play in the big-company market," says Evancha, "you have to offer more." For Dell, that meant investing more than $22 million in R&D last year, when sales hit about $550 million. According to Dell, it has also required beefing up support and training. "These companies want the kind of support that is hard to give if you are just assembling product," says Dell. "The trip from what Gateway is to the Dell model is a treacherous road."
Waitt doesn't seem interested in hitching a ride, though. "Our intention is to go after the corporate market without raising our cost of doing business, so we don't have to raise our prices to all our customers," he says. Waitt has no plans to begin developing technology, though he has actively hunted acquisitions. And he suggests that Gateway may begin adding products -- such as software and peripherals -- to its systems. He claims that Europe offers "tremendous potential for us," though Dell, Compaq Computer, AST Research, and others have established significant beachheads there.
Waitt -- who has recently recruited a half dozen vice-presidents from giants like Digital Equipment, Rockwell International, Texas Instruments, and Coopers & Lybrand -- intends to leverage the advantages of size to save money in areas such as purchasing, while at the same time invest cash in projects that should increase efficiency. For instance, he says, "Gateway is spending money to train people and set up proper troubleshooting procedures." Also, last summer Gateway moved its production workers into a 44,000-square-foot facility down the road and reorganized them under a cellular manufacturing plan. Craig Culloton, director of manufacturing, says he expects productivity to increase by at least 30%. And Jerry Mayer, vice-president of operations, notes that the company is moving toward "what is basically a pay-for-knowledge" compensation system.
Once again, Gateway is so far achieving a touchy balance. Back in 1990, for instance, a transitional Dell absorbed a 65% drop in profits. "Every company stumbles at some point," observes Tom Quinlan, hardware editor of InfoWorld magazine. "You reach a plateau where you have to make the right choices. And even if you do, it's difficult to move to the next level."
And Gateway can't shimmy like it used to. A 20-member group now scouts out technology; another bunch, the Road Map Group, evaluates options; Waitt meets with his 10 lieutenants every two weeks, in a configuration called the Action Committee. The company has hired a media buyer to help quantify its advertising decisions. And Rob Cheng, director of marketing, now has four people working the phones full-time to ask customers pertinent questions such as "How does this price sit with you?" and "What kind of technology interests you?" "One person can't do it anymore," says Waitt. "We were unknown before, and that was an advantage. Nobody knew who we were, so we snuck up on the competition."
These days the competition is -- quite literally -- sneaking up on Gateway. But Craig Dwayne, for one, swears he's through slogging out to South Dakota. His latest ruse to gain information involves asking consumers to send him proof they've returned a Gateway computer. They get a free GateBusters T-shirt and become eligible to win a trip to Hawaii. "I learn the serial number and get some idea of what went wrong," says Dwayne. "We'll learn some interesting facts. I'm very serious about Gateway."
And Ted Waitt, in his own way, is serious about Dwayne's company. "We spend as much time looking at companies that are smaller than we are as we do at those that are bigger," he says. "He came here, and that bothers me. It's almost demented, and it did rattle some of our people. But we can't focus on that. Our biggest competitor is ourselves. And that keeps us busy."
