Twenty-one years ago, on January 30, 2004, Gateway announced it would be merging with eMachines. This brought two 90s computer brands together, but the tie-up didn’t go all that well. Let’s dig in and see what Gateway was thinking, and why it didn’t work. Because, let’s face it, who wouldn’t have wanted a never obsolete PC in a cow-spotted box?
Gateway merger rumors
Gateway was the subject of merger rumors throughout the 90s. It seemed like the industry’s most eligible bachelor.
Dell wanted to merge with them to eliminate its biggest and most successful direct-order competitor. Compaq wanted to merge with Gateway in order to better compete with Dell’s direct-order model. I don’t know how much of it was analyst talk or actual talk, but I heard rumors of an IBM tie-up early in the decade, for the same reason, to shore up IBM’s flailing PC business and make it easier to compete with Dell.
None of those mergers came to pass. Instead, Gateway did the acquiring. Even though they did it in a somewhat unconventional way.
Reverse merger with Emachines
Gateway bought Emachines in 2004–yes, the PCs of never obsolete infamy–and put its management in charge, hoping the combination could cut costs and improve profitability. It wasn’t Emachines who bought Gateway Computers. Gateway only made it look that way, and it was partly by design. Gateway wanted Emachines’ management. But the combined company still struggled to compete against Acer, Dell, HP, and Lenovo. The experiment proved to be short lived.
Gateway wanted Emachines for a simple reason. Emachines was profitable, Gateway wasn’t. Emachines computers were cheaper than Gateways, and yet, they’d found a way to be profitable. So Gateway paid $266 million in cash and stock to get Emachines’ management.
It’s not hard to see why Emachines’ management couldn’t figure out how to turn around Gateway, however. Emachines sold a very simple lineup of machines, designed to hit specific price points. Gateway sold a broader lineup at retail, and they sold essentially custom PCs via direct order. Offering a limited menu is easier than offering a limitless one. It’s easier to be profitable and it’s easier to deliver consistent results.
The experiment didn’t work. Just over three and a half years later, on August 27, 2007, Acer bought Gateway for $710 million.
What might have worked for Gateway and Emachines post merger
Gateway’s magic in the 90s was that they had Apple-like loyalty. I found it downright weird. But like Apple, Gateway found a way to sell an experience, and they found a sizeable audience that found that experience pleasant. It worked rather well, until enough competitors dragged Gateway into a price war. Gateway cut the experience as part of the cost-cutting, but the experience was what everyone wanted.
One of the things Steve Jobs did to turn Apple around was to cut the number of products it offered. The selection of models was too confusing and it also made things more expensive to build. If Gateway had taken its cue from Emachines and reduced its product line to a smaller number of models and reinstated the old Gateway customer service and experience, that would have stood a better chance of working rather than trying to go head to head with Dell with a management staff that wasn’t used to that model. Gateway could have even tried reviving its Gateway Country retail stores to provide something even closer to the Apple experience.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.
i remember actual Gateway brick and mortar store in rockford il
My first PC in 1996 was a Gateway. At the time, I think I still found the idea of a computer from a “brand” reassuring (I was upgrading from an Amiga).
By the time it came to upgrade again a few years later, I bought a machine from a cheap generic clone-builder. I’d realised this was just a commodity product and the brand offered no added value.
All PC manufacturers eventually faced the problem that they were selling a low margin commodity product. How do you differentiate yourself when the competing machines are essentially identical assemblages of off-the-shelf parts?
Boxes with cow spots 🙂
There was a Gateway experience store in South St. Louis county near South County Mall as well. I spent a lot of time in that store before ultimately ordering a custom built system online…the price tag on that was $5,400. What an experience! ?