"The ‘Gateway’ To Our Future"
By Bryan Rader, MediaWorks

From time to time, companies have to transform themselves from an old business model to a new business model just to remain economically viable. You see this happen very often for an entire industry, where the old way of doing things is no longer sufficient to generate increasing profits, growing income streams, and satisfied customers.

This is certainly the case in the personal computer industry, and for Gateway Computers in particular. I think this business case is one that all PCO’s should pay close attention to, as it has significant relevance to our own situation.

Two years ago, Gateway 2000 (as the company was then called) was in trouble, as the company found itself primarily in a single product line (personal computers) with very stiff competition, and rapidly declining profits. A never-ending price war had begun for personal computers and revenue per unit sold was shrinking month after month, and this short-term trend was beginning to turn into a long-term reality.

By 1998, the CEO of Gateway 2000, Ted Waitt, realized that he had to act quickly to alleviate the problem of declining profit margins on a single product. So he went through a complete analysis of his entire business, rethinking and remaking every element of operations, and devised a new strategy for a company now just called Gateway.

Gateway created a strategy with "six" sources of income instead of just one — systems, software and peripherals, service and training, Internet access, portals and content, and financing. Each one of these businesses has stronger margins than PCs, and expands the customer’s experience with Gateway. When a customer calls Gateway he not only can purchase the PC of his choice, he can choose from a host of software applications, internet access, training and unique financing program that suits his needs. By 2001, Gateway expects over 30% of its revenues to come from sources other than PCs.

Gateway has also added an alliance with AOL, and has opened about 200 Gateway Country, where customer can "test-drive" products. Gateway has also focused heavily on business-PC sales, which now generates almost half of the company’s profits. And the results? Sales are up from $6 billion to $9 billion, and the stock price is up 200% in the past year.

What a "transformation" for a company that was in trouble only two years ago!

I find this story very enlightening for private cable operators, since I believe that our industry is where Gateway was only two short years ago. Most PCO’s are still offering a single product line — analog video service — in a time when there is increasing competition. There are limited profit opportunities when you focus on offering just one product to a customer who is looking for more options.

Our industry’s situation is much like Gateway’s problem. We are relying on this one product (Basic cable service and premiums) to generate all of our revenues. Our pricing can only go up so high, while our costs, namely programming, continue to escalate. We too are at a time when we need to think about expanding and remaking the customer’s "experience" with each of us.

This means that we should re-assess our business strategy for what we are actually delivering to the customer. We have an opportunity to consider a more expanded product mix.

PCO’s are now rolling out many new features such as high-speed internet access, digital-music, pay-per-view and digital tiers. We should be reducing the reliance upon basic cable to earn all of our revenues, just as Gateway reduced its dependence upon personal computers two years ago. Subscribers will be more satisfied, property owners more pleased, and the PCO will generate greater income from each individual home passed.

This revitalization and transformation of our industry is what the spirit of "Private & Wireless Broadband" is all about. I am pleased to see National Satellite Publishing as the new publisher of this magazine, with many ideas for new product lines and expanded offerings.

Much like Gateway, we are all in a position to "revitalize" our industry and our companies through a similar overhaul of strategy and operations. I am leading this charge at MediaWorks today, and am seeing this happen more frequently with other PCO’s too.

Maybe that’s why I just bought a Gateway computer for my home and my office. Every time I see their brand name, I think of this successful "transformation" story. Hopefully, you will too.

About the author

Bryan Rader is president of MediaWorks in Atlanta, one of the fastest-growing telecommunications provides serving multiple dwelling units. MediaWorks is an active member of the Independent Cable and Telecommunications Association.