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Gateway opening doors to the Net

The transformation of Gateway from a PC maker to an Internet presence takes another step forward when the company announces a $200 million investment in venture company CMGI.

The transformation of Gateway from a PC maker to an Internet presence took another step forward today when the company announced a $200 million investment in CMGI, an influential venture fund company with stakes in Lycos and other Web operations.

Gateway is investing in CMGI as part of a plan to explore setting up new "collaborative" business ventures and strategic investments in Internet companies.

Among the possibilities being considered are Web site development and interactive marketing initiatives, executives said. Additionally, Gateway becomes a preferred vendor of computer systems to CMGI.

"We're a company that's about the computing experience and not just computer hardware," Gateway president Jeffrey Weitzen said in an interview with CNET The alliance with CMGI will offer opportunities to improve the computing experience in areas ranging from content and e-commerce to Internet infrastructure, he said.

For instance, Weitzen cited CMGI's NaviSite and NaviNet as offering services that might be useful to Gateway's small- and medium-sized business customers. NaviSite offers Web hosting as well as ad and content management services and the ability to support auctions on sites. NaviNet offers wholesale, nationwide dial-up access for ISPs.

Gateway's existing Internet and e-commerce initiatives, such as its SpotShop, which sells computer peripherals and software, also will be bolstered by the CMGI alliance, executives said.

Weitzen said he expects that the first results of the collaboration with CMGI will be announced "in a matter of months."

The deal with CMGI, of course, is not happening in a vacuum. For the past year Gateway has been devising ways to leverage its existing customer base and financial clout for revenue streams on the Web. ISPs are increasingly becoming important businesses, while portal deals could bring in revenue and ways to differentiate Gateway PCs in the market.

The company today added that Gateway's existing Internet and e-commerce initiatives, such as its SpotShop, which sells computer peripherals and software, also will be bolstered by the CMGI alliance.

"This is another sign of Gateway moving from a hardware-centric [business] model to one that relies a lot more on services, specifically Internet-related services," said Roger Kay, research manager with International Data Corporation.

"Gateway is one of the companies in the vanguard of this movement," Kay said, offering the opinion that Gateway is pulling the industry into this services-oriented manufacturing model in fairly rapid fashion.

Increasingly, PC makers are looking to attract customers in a highly competitive and changeable market by selling services and content around their hardware.

A shift to a service-centric business approach is expected to catch on in the next two years, according to a recent study by Cahners In-Stat. The personal computer will become "appliance-like...and merely become the foundation for the bundled information services," according to the study.

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At Gateway that shift is already underway. The company offers a year of free Gateway-branded Internet service that is provided by a subcontractor and sells computers on an installment plan with the option to trade in a computer for a newer system at the end of the contract. The company also operates an e-commerce site for selling computer peripherals and software in a joint venture with NECX, another company in which Gateway has a financial stake.

Like most PC companies, Gateway has a deal with an Internet portal--in this case, Yahoo--to provide customized start-up pages to simplify Web surfing. Eventually, the two companies hope to work on ways to provide information through a growing array of devices outside the standard PC market.

In addition, Gateway has been looking at investing in a start-up called iBelong, which builds "vertical portals" around affinity groups such as trade associations, with general-interest content, as first reported by CNET

Dell Computer is another company headed in this direction, having undertaken initiatives such as opening up its own Internet store for selling computer peripherals and software, called, and moving to sell more of its systems via the Internet. While Dell emphasizes the Internet as an efficient way of selling goods, Kay said, Gateway is having success using its services to introduce customers to the Internet.

With the deal, Gateway is hitching itself to a fast-rising star in the Internet start-up business. CMGI's stock has risen around 4,800 percent in the last year alone as companies it invested in, such as Lycos, GeoCities, and, have gone public or been sold. The company is majority owner of CMG Direct, SalesLink, InSolutions, and On-Demand Solutions, which offer direct marketing and fulfillment services.