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Big rebates on PCs may go kaput

The days of the $400 rebate for PC buyers who also sign up for three years of Internet access may be numbered, the latest dose of bad news for PC makers.

    The days of the $400 rebate for PC buyers who also sign up for three years of Internet access may be numbered, the latest dose of bad news for PC makers already suffering from sluggish sales.

    Earlier this month, Microsoft said it will discontinue its MSN rebate, which had been offered to consumers in exchange for an agreement to sign up for three years of Internet access for $21.95 per month.

    Emachines pointed out in an earnings release Thursday that Microsoft's decision will give it a initial "competitive advantage," as it plans to continue offering $400 rebates in cooperation with CompuServe through "the end of the second quarter of 2001."

    However, the release also noted that its arrangement with CompuServe is good "through the end of the second quarter of 2001." In addition, the release stated, "We anticipate the elimination of all $400 rebates beginning in the third quarter of 2001."

    MSN and CompuServe are two of the largest ISPs to offer the rebates.

    A representative of AOL Time Warner, which owns CompuServe, declined to comment on the report.

    Another major ISP that offers the rebates, EarthLink, acknowledged Thursday that the rebates are expensive and likely to be used sparingly.

    EarthLink has been testing a $400 rebate program since last month at the regional Fry's Electronics chain in California, but spokesman Arley Baker said he does not see the program expanding.

    "Everybody knows it is a pretty costly way of acquiring customers," Baker said. "It's probably not going to become a mainstay practice of ours."

    The advent of the $400 rebates in late 1999 led to a boom in PC sales, particularly in the middle of last year. However, IDC analyst Roger Kay said earlier this month that the marketing tool may have run its course.

    "I would say the (PC industry) has ridden it about as far as they can," Kay said.

    Microsoft Chief Financial Officer John Connors said this week that Microsoft made the decision to end the rebates in an effort to improve the profitability of its MSN unit. The rebates will be replaced with other programs, such as the offering of a year of free MSN service with a new PC purchase.

    "We have a variety of other programs that are less rich, if you will," Connors said at an investor conference this week. Microsoft said in its last conference call that the program was eating into its bottom line.

    Prodigy Communications, which also offered the rebates, discontinued the program in the fourth quarter of last year because it found the deal to be too costly a way of picking up new customers, a representative said.