Selling Computers Without a Storefront

It reached $9.6 billion in sales by building a computer company with almost no stores. Then it opened more than 300 of them, and in 2007 sold itself for $710 million.

You heard the truck before you saw it, and then the box was on the step.

It was white with black blotches, the pattern of a dairy cow, and it was bigger than a boy and heavier than it looked.

The whole family stood around it in the front hall. Nobody wanted to be the one to cut the tape, and everybody did.

Inside, under a shell of foam, sat a tower, a heavy monitor, a keyboard sealed in plastic, and a stack of manuals thick as a phone book.

This was the family's first computer. It had not come from a store. It had come from a farm.

The name on the box was Gateway, and for a while everyone called it Gateway 2000.

It started in 1985 in a rented farmhouse near Sioux City, Iowa. Ted Waitt was a college dropout back on the family cattle land, and he ran the first orders on a ten thousand dollar loan from his grandmother.

The machine inside was ordinary. It ran the same chips and the same software as the computer in the store. What made the company was everything it refused to pay for.

There was no showroom. No sales floor. No rent on a corner in the mall.

A customer called a phone number, described what they wanted, and a built-to-order machine arrived in the mail a week later.

The computer was the same box everyone sold. The profit came from all the overhead nobody else knew how to skip.

Even the cow spots were a decision about money. One color of ink on plain cardboard cost less than a glossy carton, and it told the whole country where the thing came from.

Skipping the store meant the price could be lower and the margin could still be there.

Buyers who once feared mail order for something this expensive learned to trust the phone call and the warranty. Word traveled. A machine that cost hundreds less than the same thing downtown did not need much of a sales pitch.

By the year 2000 the little mail-order operation was posting $9.6 billion in sales and employing close to twenty-five thousand people. The boy who cut the tape had grown up, and half the block had a spotted box in a closet somewhere.

Then the shortcut stopped being a secret.

A rival in Texas ran the same direct model and ran it harder, turning parts over faster and pricing lower. The personal computer itself turned into a commodity, a beige box with no room left in the price to hide a profit.

So the company reached for the one thing it had always gone without. It opened stores. The first two arrived in late 1996, and by early 2001 there were more than 300 of them across the country.

The stores were the strange part. For most of their life you could not carry a computer out of one. They were showrooms. You came in, you looked, and you ordered a machine to be shipped to the house, the same as before.

The business had spent fifteen years teaching people they did not need a store. Then it built three hundred of them and paid rent on every one.

The stores carried the cost of retail without the speed of it.

In March 2004 the company bought a budget computer maker and tried to fight on price alone. Weeks later, on April 9, 2004, it closed its remaining 188 stores and cut about twenty-five hundred jobs.

The losses ran on. In 2007 a manufacturer in Taiwan bought the whole company for $710 million, less than the sales it had once booked in a single month. The name went on living as a label on other people's shelves.

The real invention was never the computer. It was the idea that you could sell something big and expensive with no store standing between you and the buyer.

That idea outlived the company. It became the way almost everything is sold now, shipped to the door from a warehouse nobody ever sees.

Skipping the store was the radical part. Now skipping the store is simply how things arrive.