Gateway maps 'beyond the box' growth

The direct PC vendor wants to generate a larger slice of its profits from non-PC products and services. Gateway has dubbed the strategy its "beyond the box" initiative.

The plan includes a partnership with Sun Microsystems, whose sales staff will recommend Gateway PCs to Sun customers looking for Windows-based computers. In return, Gateway in April will pre-install computers it sells through Sun with the Sun Portal Pack, Sun's web-based desktop application software.

Gateway announced two other partnerships yesterday -- with office equipment company OfficeMax and business software maker eSoft -- that are also geared towards broadening Gateway's distribution channels. As part of the deals, Gateway will invest a total of $US75 million in OfficeMax and eSoft, the PC maker said.

In a market where PC prices have declined steeply in recent years, Gateway and its rivals have been working hard to diversify their revenue base. On Tuesday, Dell announced plans to offer a variety of web hosting services under a partnership with Interliant of New York.

In February of last year, Gateway became the first PC maker to bundle its own internet access service with its PCs -- although Gateway has since largely handed control of that service over to America Online (AOL). Gateway then went on to launch an online store where the company sells peripherals and software. The PC vendor also makes money by offering computer training and other services to consumers and small businesses, said Gateway spokesman John Spelich.

"We view the PC as a central device, but it's only the beginning of a lifelong relationship with the customer which carries through to the peripherals, the software and other services," Spelich said. "We think this will be the business model of the future."

To become a $US30 billion company in 2004, Gateway will need to speed up its rate of growth substantially. For its 1999 fiscal year, Gateway reported revenue of $8.6 billion, an increase of 16 per cent over fiscal 1998. As an early target in its five-year plan, Gateway said it hopes to boost the portion of income the company derives from non-PC products and services to 40 per cent in the current fiscal year -- twice the level in fiscal 1999 and 10 per cent higher than the vendor's previously announced target for fiscal 2000, the company said.

Jeff Weitzen, Gateway's president and CEO, said the new strategy will help the company reach more customers than it ever has before.

Wall Street reacted favourably to yesterday's announcement. Gateway's shares on the New York Stock Exchange were selling for $67.19 in late afternoon trading, up $10 from the day before.

In the deal with OfficeMax, Gateway plans to set up a Gateway store within the retail computer department of more than 1000 of OfficeMax's stores in the US over the next 12 months. Gateway will invest $50 million in OfficeMax convertible preferred stock and carry a hot link to the OfficeMax.com online store on all PCs sold to small and medium businesses, the company said.

The partnership with eSoft will combine that company's software and services with Gateway PCs and servers to offer a range of online services to smaller businesses, including firewall protection and web hosting. The move should make it easier for smaller firms to take their businesses online, Gateway said. Gateway has committed to invest $25 million in eSoft, and will work with the company to develop new software and services.http://www.gateway.com

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James Niccolai

PC World

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