The Lions went into the clash against ACT Brumbies on the back of five comfortable wins, including Saturday's 47-17 victory over NSW Waratahs.
But the Super Rugby leaders ultimately put the tourists to the sword in the first-half. Gatland's men rallied in the second-half, as reinforcements were brought into the fray in Canberra, but it was too little, too late as their unbeaten record was shattered.
"It's disappointing but in fairness to the Brumbies they played well and put us under pressure at the breakdown," said Gatland.
"We came here on the right track, momentum was good but we have taken a step back after a really good performance on Saturday.
"The first half performance was not good enough and we got what we deserved.
"The breakdown was disappointing and there was inaccuracy at securing ball at the lineout.
"We had that debate whether to let them work their way through it or make changes and we had to think about Saturday as well.
"We made some changes and gave them a rocket at half-time and I thought we were much better.
"We talked about being smarter and playing a bit more territory. It was a tight game, there was a lot of kicking and not a lot of opportunities.
"It was a tough decision to make but the guys on the bench got us back in the game and gave us a chance.
"The intensity in the first was disappointing and it was better in the second-half but it just wasn't enough."
The lineout was a cause for concern in the first half at Canberra Stadium with Brumbies pinching numerous lineouts and several being overthrown or not straight.
But Gatland is adamant the inaccuracy at the set-piece can be put right as the Lions target a first Test series victory since 1997.
"It's one of those things. Sometimes that happens but it put us under pressure with some not straight and a couple of overthrows," said the Lions head coach.
"It' something we have to work on in the next few days."
And he insists Sam Warburton's Pride of Lions must pick themselves up and turn their attention to the first Test against Australia at the Suncorp Stadium on Saturday.
"We have to take it on the chin and start to focus on Saturday," added Gatland.
"We had a few new guys in and unfortunately it was a disappointing performance but the focus has to move to Saturday."