Gateway, Inc.
Gateway, Inc., previously Gateway 2000, Inc., was an American computer company originally based in Iowa and South Dakota. Founded by Ted Waitt and Mike Hammond in 1985, the company developed, manufactured, supported, and marketed a wide range of personal computers, computer monitors, servers, and computer accessories. At its peak in the year 2000, the company employed nearly 25,000 worldwide. Following a seven-year-long slump, punctuated by the acquisition of rival computer manufacturer eMachines in 2004 and massive consolidation of the company's various divisions in an attempt to curb losses and regain market share, Gateway was acquired by Taiwanese hardware and electronics corporation Acer in October 2007 for US$710 million.
History
1985–1990: Foundation
Gateway was founded as the TIPC Network by Ted Waitt and Mike Hammond in September 1985. Ted Waitt was the company's principal founder; he was later joined by his older brother Norman Waitt, Jr. Before founding the company, Ted Waitt lived on his family's cattle farm in Sioux City, Iowa. He had dropped out of two different colleges to work on the farm before landing a job at a computer store in Des Moines, Iowa. After nine months of experience gained on the job, Ted had the idea to start his own computer reselling company that would allow him to sell to niche customers who needed systems in between the lower- and upper-ends of the personal computer market, whose systems were either too limited in terms of speed and memory or too expensive with seldom-used higher-end features. Ted also found that educated salespeople could successfully sell computers to customers completely over the telephone, impressing on him the idea that he could eliminate overhead by having a robust remote salesforce and impressive catalog.Strapped for cash, however, Ted Waitt took out a $10,000 loan from his grandmother Mildred Smith and occupied the empty upper floor of his father's dilapidated cattle brokerage. He was joined by Mike Hammond, Ted's coworker who trained the latter to become a computer salesman at their previous job. The duo's first products were software and peripherals for Texas Instruments' Professional Computer home computer, advertised in various computer magazines. The TIPC had been discontinued in the previous year and was largely considered obsolete by 1985. TIPC Network charged their first customers with a membership fee of US$20, in order to flush the company with more start-up capital.
Owing to their products' very low costs, TIPC earned up to $100,000 in sales within the first four months, beating out many of their competitors in the TIPC aftermarket segment. In early 1986, Ted's brother Norman Waitt was hired as TIPC's financial advisor in exchange for owning half of the company. That year, the company began selling their own hand-assembled computers locally on an experimental basis. By the end of 1986, TIPC changed their name to Gateway 2000, Inc., and earned $1 million in revenues—the experimental complete computer systems contributing only a small amount to this figure.
Gateway 2000 was inspired to produce computer systems compatible with IBM's hugely successful Personal Computer in mid-1987, after Texas Instruments had announced a rebate program allowing customers to trade in their older home computer systems, in order to contribute toward a $3,500 credit on Texas Instruments' PC-compatible systems. Feeling that they could offer such computers for half the cost, Gateway 2000 released a complete PC compatible system with dual 5.25-inch floppy drives, ample RAM, a color monitor, and a keyboard, for $1,995 through mail-order. The system was a success for Gateway 2000, with revenue increasing from $1.5 million in 1987 to $12 million in 1988.
The company's first computer systems were assembled from parts supplied from other mail-order companies. Instead of hiring computer engineers and industrial designers to devise these products, Gateway 2000 instead relied on Ted Waitt's instincts for what customers might appreciate. According to the company, their initial customer base shopped on price alone and rarely made requests for service parts or complex technical support. Because of this, Gateway 2000 maintained a slim overhead, and they were able to price their products below competitors.
In 1988, Gateway 2000 moved their headquarters from the Waitt family ranch to the 5,000-square-foot Livestock Exchange building in downtown Sioux City, for which they paid $350 a month in rent. In the same year, the company launched their first major advertising campaign, taking out a full page advertisement in computer magazines for the first time to advertise the company and its products, putting particular emphasis on their low cost and the company's Midwestern United States roots. Waitt described the aim of the tagline "Computers from Iowa with a question mark. Like, who would expect computers from Iowa? You just don't expect it...And it struck a chord in a time when people were, you know, doing a lot of things different in the industry. You know, so that was the original cow ad." The campaign was funded with only a small portion of Gateway 2000's revenues but was very successful nonetheless, the company netting $70.6 million in sales in 1989.
1990–1995: Early growth
In January 1990, Gateway 2000 moved their headquarters from Iowa to North Sioux City, South Dakota, in order to take advantage of South Dakota's lack of income taxes. The company expanded their advertising campaign that year, producing a number of humorous half- and full-page spreads, featuring employees of the company in pastoral settings, photographed by a local studio. The company extended the pastoral theme to their shipping containers, which were white with black spots, reminiscent of Holstein cows; this monochrome design scheme also contributed to low costs. Waitt recalled that "The cow spot was actually developed by a graphic designer. I can't take a claim for that. All I can take claim for it, when I saw it on a box, I said, that is amazing... it was kind of that, no matter where Gateway went, around the world, we took the cow spots. And it was taking that, you know, Iowa values, those Midwestern values with us wherever. It was our symbol."Gateway 2000 posted $275 million in revenues by the end of 1990. Fearing that the company was growing too big for them to handle, the Waitts and Hammond recruited a public accounting firm and poached six executives from rival computer manufacturers to plot the company's growth. These executives in turn set up a number of divisions to promote innovation within the company, including a marketing department with five employees, a group dedicated to exploring new technologies with twenty employees, an "Action Group" of ten executives whom Ted Waitt deferred to every two weeks, and a "Road Map Group" to evaluate product development and branding choices. In addition, the company hired a media buyer to handle the company's advertising assets advertising and contacts with magazines and other mass media companies.
In the summer of 1991, Gateway 2000 commissioned the construction of a 44,000-square-foot manufacturing plant down the road from its North Sioux City headquarters, expected to increase its manufacturing output by 30 percent. That year, the company also expanded their dealer channels beyond the individual buyer into fleet sales to enterprises. Gateway 2000 offered such corporate clients training programs, troubleshooting literature, and more rigorous customer service. While still a private company at this point, Gateway 2000 elected to release financial results quarterly via press releases in order to project an image of legitimacy among corporate buyers. By 1991's end, Gateway 2000 posted $626 million in sales.
Despite the added research and development divisions in 1991, the company admitted to falling behind their competitors in terms of innovation. In an attempt to catch up, Gateway 2000 began segmenting its marketing to appeal to customers with specific needs beyond value and price. For example, the company began offering their desktop computers with the AnyKey, a 124-key keyboard with advanced macro programming for power users and programmers. In 1992, they released the HandBook, a lightweight subnotebook aimed at the executive market. At the end of 1992, the company added 200 people to their support and sales departments, increasing the number of total employees in the company to 1,700. By 1992's end, Gateway 2000 reported $1.1 billion in sales. The company had managed to avoid losses during a fierce price war ushered in by Compaq over the summer of 1992, becoming the leading mail-order computer business in the United States.
Gateway 2000 reported their first drop in revenue in the second quarter of 1993, which they attributed to quality control problems reported during the final quarter of 1992 and a stagnant roster of products. To remediate the latter, the company released a notebook with a passive-matrix color LCD and a newer subnotebook. In order to stave off the rise of competitors Dell and IBM in the mail-order market, Gateway 2000 began pursuing markets outside the United States and planned to ramp up their corporate sales by the end of 1993. In service of the latter goal, Gateway 2000 launched a division dedicated to handing major accounts, poaching an executive from IBM to head this division. Gateway's technical support staff doubled its headcount to just over 400; Gateway 2000 assigned each of their large corporate customers their own dedicated technical support associate. In October, Gateway 2000 established a European subsidiary in Dublin, Ireland, which staffed a full roster of departments, including manufacturing, sales, marketing, and technical support.
In order to offset the higher-than-expected cost of their corporate sales boost and expansion into Europe, Gateway 2000 announced their plans to go public in October 1993. With their initial public offering the following December, the company raised $163.5 million through selling 10.9 million shares. These shares represented a 15 percent stake in the company; Waitt retained ownership of the other 85 percent of Gateway 2000. Along with financing the aforementioned two initiatives, this infusion of capital also allowed Gateway 2000 to expand its product roster to include networking hardware such as fax modems, peripherals such as printers, and various software products. By the end of 1994, the company employed 5,000 and posted $2.7 billion in revenue.