Gateway Channel Chief Rising to the Challenge

Tiffani Bova has long acquaintance with the channel and made an impact on partners wherever she has been. Today, she is channel chief for Gateway, which is about to roll out a revamped channel program that will also feature richer margins for VARs thanks to the manufacturing muscle that Gateway added following its merger with eMachines earlier this year. In an interview with CRN Editor-in-Chief Michael Vizard and News Editor Steve Burke, Bova talks about why she thinks that Gateway has become one of the better manufacturing partners for VARs in the PC space.

CRN: As a pioneer of direct selling, Gateway and the channel have historically been something of a contradiction. What's changed at Gateway?

Bova: The new Gateway if you will is very channel focused. We have multiple channels for reaching customers and obviously the retail channel is a big play for us and we have a direct sales force, a Web channel and our indirect channel. Today, if you look at the overall business, we're about $4 billion. Half of that is going through the consumer retail space. The other half is going through the professional space, which we consider the business customers. Within that 10 [percent] to 15 percent today, both in public and private sectors, goes through what we all consider the channel. With very little effort we've reached that number. So by putting some more focus and effort behind it, I think that we can see good results fast and quickly. The channel is truly the growth engine for us in 2005.

CRN: What are you going to do to make Gateway more attractive to partner with?

Bova: We're going to move to either a named accounts structure in direct business and or a deal registration program. We're going to be very clear about our rules of engagement between direct and indirect with a favoring of the VAR in the event of a tiebreaker. If a customer wants to buy from a partner, we should respect that relationship. If the customer wants the solution provider to do the implementation, but I prefer buying direct from the vendor, the partner needs to feel comfortable that we will take care of them on the back end with a referral of agent fee. We also need to wrap a compensation model around all that. In the 90 days, we put a lot of energy into how we get embraced by the channel because we thought about how they run their business than we have in the past. Another key thing we have is a neutral compensation plan between our direct and indirect sales reps. We're really looking to make it noncompetitive.

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CRN: What makes you think you can make that work?

Bova: Most vendors out there have inherited a complex program. Gateway is one of the very few tier-one vendors that didn't have a robust channel strategy. It's difficult to do when you have 10,000 partners and hundreds of sales people with 15 different compensation plans. We don't have that complexity. We're not dealing with anything messy.

CRN: What's your take on the IBM-Lenovo pact?

Bova: Over the last 10 years, one of the largest shakers in our business obviously has been Dell. Their low cost, very efficient delivery model and supply chain has driven margins to the point where a high SG&A company is going to have a difficult time competing in our space. I think this deal validates the Gateway-eMachines deal. The channel should now expect to be able to ask vendors such as us to be allowed to make richer margins as our costs drop. As we get a more efficient model, you should pass some of those savings on to partners.

CRN: Are VARs going to see richer margins from Gateway?

Bova: We're going to roll out in the first quarter a restructuring of our pricing strategy as it relates to the channel. Our SG&A since the merger has gone from the middle twenties to sub-ten. Now it's time to pass that on. If there is no bundling of peripheral, software or services, margins are in the 5-to-8 percent range. When you basket the offering with warranties, software and services, that's where you can move margins into the 20 percent range.

CRN: How are the Gateway PCs taken to market?

Bova: We have retail product that is only sold in retail and then we have the Gateway SMB product line that is aimed at customers with one to 99 seats, and then we have the Professional lineup, which is 100 seats and above. The VAR channel has access to the Professional products. We're also thinking about a product lineup for the channel that is in the 25 to 99 seat range. In that space, it's all about the price point.

CRN: Will you be able to compete with Dell on price then?

Bova: Dell will go out and lose money on a PC deal. They'll make the PC a loss leader. In our position, we need to turn a profit, so we're not going to do unprofitable deals. But VARS in general don't want to partner with Dell because they fear Dell's direct sales force. I think Dell also requires end-user data; we don't. We respect the relationship of the VAR and the end customer.

CRN: What's your take on the Dell-HP wars?

Bova: If HP and Dell stay in a shootout, I'm happy. Gateway is the No. 3 PC manufacturer in the United States—not a bad place to be behind two powerhouses that are battling each other. The quiet third-place provider can sort of come up slowly without anybody really paying attention.

CRN: Where does Gateway have the most success with VARs?

Bova: The largest majority of our VAR business right now is going through the public sector VARs. Without a doubt, a key priority for us is partners that service the public sector. After that, it is the private sector business and then following that is really the pro AV VAR. What's interesting here is that solution providers that provided solutions for businesses are now being asked by the customers in the businesses to do something in their homes. So you have solution drivers have been traditional VARs being asked to do more and more in this home convergence space vs. the pro AV VAR trying to become a solution provider.

CRN: What role does consumer electronics play in PC sales?

Bova: Plasma TVs and screens are actually pulling PCs and servers. As people become more digital in their office place, we've got a lot of solution providers that provide very vertical solutions that lead with a plasma TV because they're pushing content out from a PC, ultimately being driven by a server.

CRN: How important is the server side of the business at Gateway?

Bova: As we go out and talk to partners they don't actually realize how robust our product offering is. One being the server side, the other being storage and the other being the wireless networking products. On the server side we're completely Intel inside. We're squarely focused on that midenterprise space. The high-end enterprise server solution or storage solution is just not something we are currently focused on going after. Our storage products are competitively priced. Our wireless products are very robust and focused on a small business. We've even got one wireless product just with the ability to a guest LAN and a corporate LAN on the same unit.

CRN: Gateway was one of the first companies to come out with the new BTX chassis. Is being first to market a big part of the new plan?

Bova: There are certain areas that we feel we will drive the leading edge. The BTX chassis is sort of one of those things. We feel this is worth the risk of coming out ahead of the pack.

CRN: What kind of commitment does Gateway make for deliveries on behalf of VARs?

Bova: It's not just the Gateway reputation. It's the partner's reputation we have to think about. When they make a commitment to a customer, we have to keep our commitment to the partners so that they can keep their commitment to the customer. We are the back end of the face of the relationship that these solution providers spend years developing. Whatever commitments we make to you we stand behind. As we finish out the integration between eMachines and Gateway, one of the key things is obviously logistics and the manufacturing and the distribution of the products. With eMachine's focus on logistics, Gateway is getting better at that part of its business. We're banking on the fact it's going to give us that leg up. One of the good things about us is that Gateway is not too small to not have the capital to make an impact in this space. But we're not too big so we're inundated by process and procedure and legacy systems and infrastructure in a way that we can't be nimble very quick.

CRN: What ultimately differentiates Gateway for partners then?

Bova: We don't have a services organization or any intention of building one. The services we deliver today we deliver via partners, but they may be branded as Gateway or under the name of the partner as a subcontractor to Gateway. We use the channel to deliver our services. And we're not going to scale our direct sales organization to any level where it would make an impact in the midenterprise space. In a few words, I would say for is it's about a simple program, ease of doing business and good margins. I don't think we need to overcomplicate the program with all these other things that might not help their business from a bottom-line perspective. And if a VAR has been disenfranchised or forgotten someplace else, we're absolutely interested in having them do business with us. The opportunity we have in front of us is for VARs to trust the fact that Gateway is a solid partner. We've got good product. We've got good margins. Get us in the door and let's grow the relationship together.