Compaq jumps on Net devices bandwagon

The convergence of the PC industry and the consumer electronics market will take another step forward next week when the PC maker unveils its strategy for Internet appliances.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
The convergence of the PC industry and the consumer electronics market will take another step forward next week when Compaq Computer unveils its strategy for producing Internet appliances.

Houston-based Compaq will show off the iPaq music player (a home unit for playing MP3 files), an Internet terminal for Microsoft's MSN service, and other next-generation appliances at a press conference next week in New York, according to sources close to the company. The show-and-tell is part of the company's plan to expand into Net devices.

A Compaq spokeswoman declined to discuss unannounced products. Other Compaq executives, however, have said that a consumer product announcement is slated for Aug. 15.

To date, most companies promoting Internet appliances have lost money, but major computer makers are betting that their established brand names, marketing relationships, and extensive distribution and sales networks will lead to success. Besides Compaq, Gateway and Dell Computer are also testing the Net appliance waters.

A crucial part of the strategy for all of these companies is the PC. Many of the new devices, such as MP3 players, will not be sold as separate products. Instead, they will be marketed like scanners, printers and other peripherals connected to PCs.

"It is clear that this is a market that they (the major PC companies) want to get into," said Matt Sargent, an analyst at ARS. "Every time they sell a computer and don't sell consumers an MP3 player right there, they are leaving money on the table."

However, other devices, such as Compaq's MSN Internet appliance, are aimed at people seeking a computer substitute.

While the major computer companies have traditionally been considered manufacturers, in truth most of them focus on marketing and leave actual assembly and substantial portions of product design to other companies.

Compaq's turn toward devices began late last year at Comdex when the company showed off a home Internet terminal code-named Clipper. At the same time, Compaq began to promote the iPaq, a small, stylized, inexpensive PC for corporate buyers.

Although initially identified with the corporate desktop, the iPaq brand soon spread to handhelds, cell phones, two-way pagers and other devices, said Jerry Meerkatz, vice president of Compaq's desktop PC division. The division between consumer and corporate products began to dissolve.

"There's going to be no difference between a consumer and a corporate play going forward," Meerkatz said.

Since then, Compaq has re-branded its handhelds under the iPaq moniker. The original iPaq computer has also been selling well, according to a number of analysts.

In June, Compaq CEO Michael Capellas also announced plans to build MP3 players.

"We're coming out with MP3 players. The Internet will become different types of devices that serve different purposes," Capellas said at the time.

Compaq isn't the first major manufacturer to go down the device path. In April, Gateway announced that it would come out with Internet terminals later this year in conjunction with AOL. In early 2001, the two companies will follow up with a Web pad that can connect directly to the Internet via a wireless modem.

At PC Expo, Dell unveiled the Dell Audio Receiver, a home MP3 player that sells for $199 when bought with a home computer and for $249 on its own.

Similarly, budget PC specialist Emachines in June previewed its MSN Web Companion. The device, about the size of two TV dinners standing on end, will run on Microsoft's Windows CE operating system and connect directly to MSN. It comes with no floppy or CD-ROM drive. Emachines' device will come out later this year.