“Off-White Paper” #4 – The Battle for #2 in Direct PCs

“You don’t know where you are in the food chain until someone bites you on the a**”. Mark Amtower No one would argue that Dell owns to #1 spot in the PC direct category. The real story lies in the battle for #2. Although Gateway is a larger company ($6.3 billion in 1997), Micron is out to gain the #2 spot. In January 1998 they hired Joel Kocher as their new CEO. Mr Kocher spent several years at Dell helping design and implement the direct business model. He then moved on to Power PC, the Apple clone manufacturer that was getting to market faster than Apple. Then Mr Jobs returned to Apple, axed the licensing agreements and bought Power PC (Hey Steve! Ever hear of Sony & BetaMax??!!?) So Mr Kocher was picked up by Micron is January. Good move. Gateway is not sitting idly by, waiting to be overtaken. In January 1998 it hired Jeffrey Weitzen, an 18 year veteran of AT&T (marketing – thank God -, product management, engineering, manufacturing and worldwide business management). So the lines are drawn, and we’re ready for battle. In brief, here’s my assessment: Size: advantage Gateway. They have sales of about 2-3 times that of Micron and are (currently) secure in the #2 spot. Momentum: advantage Gateway. They have better name recognition (although not always positive) and the black & white cow motif has served them well as a branding tool. Micron’s name recognition is minimal at present, though they have won some nice awards. CEO: advantage Micron. Mr Kocher’s background is ideal for this battle. Though Mr Weitzen has a strong corporate background (in several disciplines) with a huge player, I believe the key factor here is experience in direct. It is a different mindset. Overall advantage: regardless of size, I give the edge to Micron. If executed properly, in 36 months they could equal or surpass Gateway in direct sales. Their challenge is name recognition (positioning & branding issues) and they can afford NO – absolutely NONE – mis-steps. I write this on 9/20/98, and if I change my prediction, I will note that date on the change. The next twelve months will tell the tale. Each new CEO has been on board 9 months. By the end of 1999 (another Y2K issue), we’ll have a clear indication of whether or not I gave my broker the proper instructions earlier this year! What does all this mean for the government market? First, when the numbers come out for Federal FY 1998, Dell will leave the pack behind. As the only truly integrated marketer among the top GSA Schedule vendors, it is poised to kick butt. We anticipate Dell achieving $500 million on GSA Schedule alone, with their nearest competitor doing about 65% of that. The top five should be #1 Dell ($550mm), GTSI ($300mm+, when combined with BTG), #3 Gateway ($300mm), #4 IBM ($200mm), #5 Micron ($175mm). Note that GTSI is the only reseller in the top five, and also remember that this represents the new, combined A, B/C and services Schedule (which accounts for IBMs rank). The first one (between Gateway and Micron) to replicate the Dell MARKETING model will be the one to emerge as the strong #2, somewhere in the early 2000s. Copyright 1998, Amtower & Company