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AOL, Gateway join Internet appliance fray

The Internet giant and the PC maker will unveil a line of jointly developed Internet appliances, the first fruits of their alliance.

! EDS Update 12:36 pm: Adds art, no text changes --> America Online and Gateway today unveiled a line of jointly developed Internet appliances, the first fruits of their alliance.

The Linux-powered devices, which consist of a Web tablet, a countertop appliance and a desktop appliance resembling a computer, are the first products to come from the alliance, announced last fall when AOL made an $800 million investment in the direct-sales PC maker.

Gateway and AOL join other PC heavyweights such as Dell Computer, Compaq Computer and Microsoft, which have already introduced or begun shipping their own versions of Internet devices.

As revenue from traditional PC sales sag, many hardware leaders have set their sights on the Net appliance market. Many firms are counting on the belief that as the Internet grows, consumers will want to access information not only from their PC, but from cell phones or personal devices at home or while traveling.

The two companies made the announcement at Internet World in Los Angeles, hailing the appliances' instant-on feature, access to popular AOL services such as Instant Messenger, and the convenient smaller size of the products, which are meant to be used throughout the home.

"With the PC today, consumers have very little choice in what they get. What we realized is that (information appliances) are really lifestyle devices to be used in many places in the home," said Peter Ashkin, senior vice president and CTO of Gateway. "These are just three of many that we'll be doing with AOL."

The teaming of two of the industry's major players may also shake the traditional PC landscape, especially as a study released today found that Microsoft will probably not carry its desktop dominance into the Internet appliance realm.

The survey, conducted by eTForecasts in Illinois, predicts that Windows, which has a 78 percent share of the 153 million Internet-ready devices (including PCs) expected to be shipped worldwide in 2000, will be diminished to a 48 percent share in 2005, when nearly 520 million units will be shipped. This is compared to Microsoft's mid-90 percent market share in the desktop PC market.

The appliances unveiled today feature no major Microsoft products. They will run on the Linux operating system and use AOL-owned Netscape Communicator's next-generation Gecko browser, the companies said.

As first reported by News.com, AOL has been working on the device since at least May 1999. AOL inherited an investment in Linux seller Red Hat when it acquired Netscape.

Part of the reason Microsoft's dominance will diminish, despite the continued popularity of the PC, is that industries such as telecommunications, cable TV and consumer electronics are trying to "innoculate themselves from any one company dominating," said Egil Juliussen, principal of eTForecasts.

"They'll be very successful, maybe the largest player, in these categories," Juliussen said. But he doesn't expect Microsoft will be able to hold any more than 30 percent market share in new areas.

The reason for that waning influence is that Internet devices can easily rely on non-Microsoft products because Web content is largely standardized. That is evidenced by the Gateway/AOL decision to use Linux and Gecko, a program derived from Netscape's Mozilla open-source development project.

The AOL-Gateway countertop Puppet masters: Who controls the Netappliance will feature a flat-panel touchscreen display and wireless keyboard, the companies said, while the desktop appliance will more closely resemble a traditional desktop PC. Both are expected to ship this year.

The Web pad will connect to a wireless base station and is expected to weigh less than three pounds, shipping in 2001.

Microsoft will be vying for consumer attention at about the same time with information appliances of its own. Last year, the company announced manufacturing partners for its Web Companion devices. The appliances will be powered by Microsoft's Windows CE operating system and MSN Internet service, and are due out in the second half of the year.

Gateway's intent in announcing the devices before they ship is to "build awareness" of the category, according to Ashkin. Gateway and AOL hope they can reach out to developers and get them to create new services and content appropriate for the appliances. For instance, Webvan might want to design its Web pages so they fit on the smaller screen of the countertop appliance, so people can order groceries from the kitchen.

"Our research shows that AOL members place high value on their ability to access Internet content and communications tools on new devices in addition to the PC," AOL's president Bob Pittman said in a statement. Along the same lines, AOL is set to launch AOL TV later this year.