PC Wars: Dell Computer vs. Gateway et al.

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PC Wars Dell Computer vs. Gateway et al.

• Geoffrey Zimmerman
• Samuel Huang

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Outline

• Essential facts
• Numbers and events
• Competitive strategy
• Morals from the case
• Discussion
• Pros and cons of Dells decision to start a price
  war as the downturn worsened in 2000
• Should Gateway abandon the attempt to develop a
  cult following with its Holstein cow image?

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Top PC Makers

• Dell
• Gateway (acquired eMachines in 2004)
• Hewlett Packard (Acquired Compaq in 2002)
• IBM
• Apple
• Dell and Gateway both sell PCs directly to
  customers, allowing them to design the
  specifications to their individual needs

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Top PC Makers
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Key Financial Statistics
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History

• Started by Michael Dell in 1984
• IPO in 1988
• Become a Fortune 500 company in 1992
• Opened a subsidiary in UK 1987

• Started by Ted Waitt and Mike Hammond in 1985
• Became a Fortune 500 company in 1993
• IPO in 1993
• Gateway Country Store launched in 1996

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Current Status

• 2003 revenue of 41 billion with net income of
  2.6 billion
• Market cap 88 billion

• 2003 revenue of 4 billion with net loss of 309
  million
• Market cap 2 billion

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Strategy Exploration

• Operating costs was 21 of revenue in 2001
• First to sell PCs on-line
• Opened Gateway Country Store in 1996 so customers
  can try out products and get advice
• Stocked cash-and-carry PCs and added digital
  cameras and plasma TVs in Gateway Country Stores
• Launched Profile 4 to compete with Apple in 2002
• Struggled to establish Gateway as a cult brand
  with the Holstein cow

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Gateway and eMachines brands occupy different
market positions

• Gateway Premium products at excellent value sold
  through Direct, Professional, Retail channels
• eMachines Value PCs sold through Retail channel

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Strategy Customer Focus

• Low cost structure operating costs was 10 of
  revenue in 2001 (including 1.5 on RD)
• Targeted advertising
• 2000 -- Dude, you are getting a Dell
• 2002 -- Dell interns
• Now -- Simple as Dell
• Expended presence open kiosks in major malls in
  2002
• Expanded business definition from PC to IT

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From the Horses Mouth
We dont go searching for technology as if it
were some new compound on the element chart that
hasnt been discovered. Instead, we listen to
our customers. That information tells us where
we should go innovate on their behalf. So you
dont get a lot of these exciting products that
dont actually sell very much.
Michael Dell, Founder and Chairman, Dell Inc.
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Morals

• A price war can be disastrous, unless you have a
  clear cost advantage
• Survival of the fittest -- power of low costs
  with competitive quality and service
• Acquiring a mystique is more fortuitous than
  deliberate and depends on the product
• Prescription for great wealth sell out on the
  top
• Stick to your business strategy and expand your
  business definition for growth

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Discussion Dells Price War

• Extra incentives in an economic downturn
• Dell had a clear cost advantage
• Dell was in a solid financial situation
• Con a price war is detrimental to all
  participants
• Dells vision improve the revenues and profits
  of our own business and at the same time put our
  competitors at a disadvantage Kevin Rollins,
  CEO, Dell Inc.

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Discussion Holstein Cow Image

• A cult following is more fortuitous than
  deliberate
• Cult following may not last forever
• Product has to be distinctive
• Harley-Davidson heavy motorcycle
• Apple computers unique hardware and programming
  environment
• Gateway sells a commodity and the Holstein cow is
  not a celebrity like Michael Jordan or Tiger Woods

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Questions