Troubled Gateway turns to new shop as earnings fall

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Gateway is believed to be in contract talks to award its $250 million advertising account to Fallon, Minneapolis and New York.

Gateway's abrupt dismissal of McCann-Erickson Worldwide, New York, last week came as the computer marketer struggles to refocus its business amid weak earnings and a management shakeup.

McCann's firing came days after founder and Chairman Ted Waitt, 38, took the helm following the resignation of CEO Jeff Weitzen, the former AT&T Corp. executive who hired McCann in late 1998.

The parting with McCann, a unit of Interpublic Group of Cos., described as "amicable" by Gate-way spokesman Greg Lund, had been coming for some time, according to people familiar with the matter (, Feb. 7). Yet as recently as Jan. 18, the night before Gateway broke a consumer TV campaign featuring Michael J. Fox, a Gateway executive touted the company's close relationship with McCann.

The agency toiled on Gateway's account for three years and also is responsible for a current campaign featuring Mr. Waitt touting the company's services for small businesses. The Fox effort, part of the "People Rule" campaign, was described as the most significant consumer initiative for 2001 with nearly one-third of the annual advertising budget supporting the program.

On Jan. 18, Stuart Redsun, VP-advertising for Gateway's consumer business, told Advertising Age, "We're happy with McCann, we're happy with the Michael J. Fox campaign." When asked about the possibility of an agency review given speculation then about changes in management, Mr. Redsun said there were no plans for a review.

Gateway declined comment and Mr. Redsun was not available for comment. However, Brad Wil-liams, a Gateway spokesman, told Ad Age by e-mail that as of Jan. 29, the date Mr. Waitt assumed CEO duties and a period the spokesman called "mid-reorganization," there was no review, and "neither Stuart nor I knew the extent of the reorg then."


"Ted came back and wanted to make a wholesale change, and we were clearly aligned with the old management team. I suspect it was part of the changeover," said Eric Keshin, general manager and chief operating officer McCann.

Gateway, however, is believed to have been talking quietly with agencies even before Mr. Waitt's return to daily management.

On Feb. 5, agencies made presentations to Messrs. Waitt and Redsun, among others, according to people familiar with the situation. Those agencies included Fallon; DiMassimo Brand Advertising, New York; and Siltanen/Keehn, El Segundo, Calif., whose founders worked on Apple Computer's "Think Different" campaign at Omnicom Group's TBWA/Chiat/Day, Playa del Rey.

Gateway declined to confirm contenders in the review and would not confirm the selection of Publicis Groupe's Fallon. Fallon executives also declined comment.

Fallon's president-executive creative director, David Lubars, worked on Apple while at Omnicom Group's BBDO Worldwide, Los Angeles.

Beyond the agency, Mr. Waitt has tapped the creative expertise of director Henry Corra on several occasions and is expected to continue the relationship.

"Obviously [Mr. Corra] has a more special relationship with Ted than most directors have with heads of companies," Mr. Keshin said, but noted McCann developed the idea for the current small business campaign featuring Mr. Waitt and directed by Mr. Corra.

Gateway, like most computer marketers, is struggling to realign its business beyond consumer hardware. Last year, the company began aggressively marketing small business services, leveraging its Country Stores as one-stop shops for consulting and integration expertise.

Gateway recently reported fourth-quarter earnings below already lowered estimates. The company lost $94.3 million, or 29 cents per share, including a previously announced $187 million charge, on sales of $2.37 billion. Analysts had projected Gateway to earn 37 cents per share, minus charges, on revenue of $2.64 billion.

In the fourth quarter of 1999, Gateway raked in profits of $126 million or 38 cents per share, on revenue of $2.55 billion.

Mr. Waitt is expected to lay out a new strategic vision for the company by the end of the month. "Ted's on a tear, the [old] team didn't meet his expectations, and he's striking the fear of God in everyone else that remains," said Roger Kay, research manager, International Data Corp., a technology research organization. "They need to get the cost structure in line with the new level of business quickly and need to shore up their small business presence in some fashion and they have to make or break their home solutions business."

For the third quarter 2000, Gateway ranked No. 3 in worldwide consumer PC shipments with 13.9% market share, according to IDC. Compaq Computer Corp. and Hewlett-Packard Co. were No. 1 and No. 2, respectively. In the commercial market, Gateway ranked No. 5.

Contributing: Alice Z. Cuneo, Laura Q. Hughes and Richard Linnett

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