Gateway recently joined the likes of Compaq Computer, Emachines, and IBM by offering a $400 customer rebate when signing up for three years of Internet access through CompuServe.
Sales of PCs at retail outlets have skyrocketed during the normally slow summer months as a result of the flood of rebate offers. Up until now, however, direct vendors Gateway and Dell did not have a way to subsidize the cost of their computers, and may have been losing sales to the likes of Compaq as a result.
"I think it was a smart move for Gateway to wait," Mark Bates, an analyst with PC Data. "Initially, the folks taking the risks were the ISPs, and the retailers weren't taking that much of a risk. In the direct model, [retailers] might have to assume a bit more risk, so it's better to see if it's a viable promotion."
Emachines pioneered the newest twist on rebate programs with its CompuServe deal, but has perhaps benefited more than others since it operates on a different business model than its competitors. Emachine chief executive Steven Dukker says his company sells discounted Internet access to people who might not otherwise afford it. His company's mission is not about selling PCs, he says, but enabling access to the technology.
"What we are trying to do is get those people earning, say, $25,000 to $30,000, onto the Internet," said Dukker in an interview with CNET News.com last week. In a recent promotion, in-store rebates meant customers could walk out of a Best Buy retail store with an Emachines PC, monitor, and printer for $99.
Gateway's position is different. While the company is increasingly shifting its focus to the Internet and now offers Gateway.net, its branded ISP program, Gateway is first and foremost a PC manufacturer.
But Gateway's reasoning for offering the promotion is not so dissimilar from Emachines'.
"We really believe the Internet is the way to go, when you look at e-commerce and some of the other opportunities online," said Mark Ritter, Gateway's director of consumer product marketing. "We're trying to reach the people who might buy a system, but might not otherwise get online because Gateway.net doesn't meet their needs."
Ritter cautiously dealt with the issue of pitting Gateway's own service against CompuServe's Internet service. "We still believe Gateway.net is the right solution for most customers," he said.
Ritter would not comment specifically on the success of the program, but made it clear customers were receptive. Unlike some other rebate programs, customers do not get cash or credit up front, but must sign up for CompuServe's ISP service and commit to the program before receiving their rebate.
Sometimes this step is one too many for customers, said Ross Ely, area vice president of marketing for Micron PC. Micron offers a $400 rebate for customers making a three-year Internet commitment with EarthLink, but compensates them at the time they buy the PC, by crediting the money toward their PC purchase.
Micron also offers another plan, with a one-year commitment and reduced monthly fee. That plan offers no rebate.
"We found a lot of customers were reluctant to make a three-year commitment," said Ely. "Three years in Internet time is a long time."
The real value of rebates and the ISP commitment is the up-front cost, said Dukker. "That $21.95 monthly fee, or whatever is, over three years is offset by what he pays up front." If the price is right, the commitment doesn't matter.
It is still unclear whether Gateway's rebate price is right, particularly considering customers get their cash sometime after buying the PC.
PC Data's Bates predicted that in the short term the rebates would continue to attract customers, but long term he wasn't so sure. "Manufacturers used this as a way of squeezing more out of an already saturated market," he said.
Gateway tentatively launched the promotion with a September 30 end date, "but we don't have a specific end date in mind," said Ritter. "We are still evaluating its usefulness to our customers."