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Commentary: Net appliances travel a bumpy road

Internet-surfing appliances have an important role to play, even though they've been slow to gain a foothold in the market.

    By Kevin Knox, Gartner Analyst

    Internet-surfing appliances have been slow to gain a foothold in the market--and there is no question that they have not been profitable--but Gartner continues to believe that these devices have an important role to play.

    Earlier this year, the New Internet

    See news story:
    Net appliances find niches, not profits
    Computer Co. (NICC) was created and enthusiastically promoted by Oracle CEO Larry Ellison. NICC has released the New Internet Computer (NIC), a network computer designed to work without the Windows operating system, a floppy disk drive or a hard drive. The NIC is priced at $199 without a monitor, or $328 with a monitor.

    Other vendors, of course, have also jumped on the Internet appliance bandwagon. For example, on Oct. 9, MSN and Emachines announced the product specifications and retail information on the soon-to-be-available MSN Companion by Emachines. This is an Internet appliance running on the Microsoft Windows CE operating system with Microsoft Internet Explorer browser software and MSN services.

    Even if consumers were to ignore the disadvantage of being tied down by a three-year contract for the Companion, the pricing itself is still not attractive. A $400 retail price with a $400 rebate seems to make the device free, but do not forget the $21.95 per month subscription fee. A consumer will have to pay more than $790 over the life of the MSN contract for an Internet device that does not have a hard drive and works only with MSN. One can easily get a decent branded PC with monitor included for the same price.

    Another factor that makes this device and the Compaq Computer iPaq equally unattractive is that they will work only with MSN. If consumers were to decide at some point after the purchase of the devices that they don't like MSN, there would not be an alternative to MSN available. In short, both of these devices will not work unless the owner is an MSN subscriber.

    Gartner believes there are some good reasons for the slow adoption of these Internet appliances. Their manufacturers have tended to market them to corporate customers, rather than to the consumers who are their likeliest initial market. Technical problems, including the lack of broadband access and file format compatibility issues, have scared off some potential customers. Perhaps most important of all, Internet appliances have not offered a clear-cut, attractive pricing advantage over PCs.

    Nonetheless, many of the objections to networked appliances are based on the fundamental misconception that they were intended to replace PCs on the world's desktops. In fact, Internet appliance devices have always been intended as complements to the PC--and in that respect they have already had a huge impact on the world of IT.

    Internet appliances, with their promise of lower overall costs, have already raised awareness of the total cost of ownership and have forced hardware manufacturers and software developers to be far more conscious of cost-management issues. If not for the threat of the Internet appliance, the IT arena would not be experiencing such an emphasis on cost management.

    For most people today, the PC offers the best overall solution in terms of cost, ease of use, functionality and performance. However, in the future, as a further separation develops between content creation and content consumption, Internet appliances will grow in popularity on the consumption side, especially with noncommercial users.

    Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.