April 19, 2011

A Tale of Two Computer Companies

Different leaders use different tactics to achieve their definition of success. The examination of two computer companies may provide some insight into the direction in which Rick Snyder is taking Michigan.

Computer company #1, founded in 1985 in Iowa, decided on a low-cost strategy to achieve success. The company took technologies created by other companies, repackaged them, and sold them at retail. Its innovations were limited to retail sales, focusing on telephone orders and later company-owned stores.

To reduce its costs even more, it relocated to "the middle of nowhere", South Dakota. South Dakota does not offer technological excellence, but it did offer low taxes, low wages for workers and low costs for land.

It found that it needed to do more. The low costs of South Dakota weren't enough to flourish. To grow beyond its model of selling high-end PCs by phone, and to attract top management and engineers, it relocated its base of operations to high-cost La Jolla, California, in May 1998.

Company #2 used a different business strategy: rather than trying to be the lowest-cost manufacturer, it focused on being the best.

It invested heavily in innovation. The company, founded in the Silicon Valley, established its headquarters in an area that offered some of the highest business costs, but also offered access to the top engineering talent in the world as well as a superior quality of life. It developed a reputation as a company which paid its employees exceedingly well.

Company #2's computers set the standards for the industry. Even though its products were the most expensive in the marketplace, they were cherished and built an almost cult following.

As you have likely deduced, Company #1 is Gateway computer. Company #2 is Apple Computer.

How have the two business models worked?

Gateway, which focused on cost-cutting and low prices, went public in 1993 at $3.75 (split adjusted) per share. It hit its peak in 1999 when its stock reached $84/share. But by 2007, the stock had plunged to $1.90/share. The company was sold to Acer Computer for $710 million, which shut down Gateway's direct sales operation. The entire Gateway board of directors, led by chairman Rick Snyder, resigned.

Apple Computer, which focused on innovation and premium-priced computers, is now one of the world's most valuable publicly traded corporation. It has a market cap of more than $300 billion. Its public offering was at $2.75/share (split adjusted); the stock trades today at about $340/share.

The company that built its business model on low costs and spent little on innovation failed. The company that built its business in what most would call a very high business-cost location, and invested heavily in innovation, is now one of the most valuable publicly traded corporations in the world.

Rick Snyder made his fortune with Gateway and its business model. Even though the company failed, it succeeded in making him a multimillionaire. The Gateway model does not bode well for the future of Michigan.

Clearly Snyder believes that economic success is all about cutting costs. His budget slashes funding for universities, for quality of life, and for workers.

Is Michigan destined to become the government equivalent of Gateway?


  1. Gateway had one of the greatest marketing campaigns of all time, studied and copied across the board, even in politics. It's all about the package, not the item. Once it's purchased, it is up to the customer to figure out what is inside. Obama is all about the box, maybe Snyder is also. Time will tell.

  2. Chip -- the bottom line is that Gateway Computer ultimately failed with Snyder as it's board chairman. The low-cost, cheap-labor, no-R&D strategy was a short-term success but a long-term failure.

    I repeat - is Michigan destined to become the government equivalent of Gateway?

  3. Really? How many debates did Obama take part in? How many did Snyder take part in? How many Super Bowl ads did Obama have? How many did Snyder have?

    The bottom line is we knew what was inside the package with Obama, but the same can’t be said about Snyder. He stayed away from any serious vetting as much as possible with a slick marketing campaign.

  4. Curmudgy-
    I think you are late in your forcast. Michigan's government has already tanked. Engler peeled all the muscle away leaving only bones for Granholm to work with. Granholm tossed the bones to the hungry dogs. The state is flat ass broke. The tax base is gone (look at the empty commercial buildings and houses about you). 16 years of poor leadership is not going to be corrected in 4 months. Snyder is a salesman, proven at Gateway and his campaign. Time will tell...He won't be any worse than John and Jenny.

  5. Commy-
    You knew that inside Obama's box was full of good old time Chicago shenanigans? I sure didn't. Obama must like something about Snyder's slick marketing campaign, he is trying to raise $1 billion to get reelected. He can run the super bowl ad with that cash.

  6. Typical, you answer a question with a question. President Obama was vetted after a grueling primary campaign with numerous debates between the now SOS, and in the general against grumpy McSame. “Obama's box was full of good old time Chicago shenanigans? “Give me a break. Give me an example of these alleged “Chicago shenanigans.”

    Since you refuse to answer the question, I will answer it for you. Slick Rick held two debates, I believe; one in a crowded primary for an open seat and one in the General. Funny, he held “town hall” meetings instead of debating, and now he refuses to attend a town hall to answer to voters.

    Is $1 billon really a lot of money in a modern presidential campaign? But hey, I’m all for getting the money out of elections.

  7. Commy-
    I am truly sorry you are so tweaked.
    I answered Curmudgy's question.

    You asked 5 questions, googled one for yourself and you could have googled 3 others. It is quite evident you don't need me to do it.

    I enjoy Curmudgy's blog. His posts are well thought out,insightful and different than mine.

    Your posts reveal communications guru you are not. Your credibility is diminished by your pompous attitude. Your answer to the question for me was wrong. Not that you care, I think you are looking for a fight that is not there.

  8. Let me get this straight” you are launching attacks on the President with nothing to back them up because you can’t back them up, and I have a “pompous attitude” and am looking for a fight that’s not there?