Is troubled Microworkz down and out?

Consumers looking to do business with "free PC" company Microworkz may have a tough time these days.

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
4 min read
Consumers looking to do business with "free PC" company Microworkz may have a tough time these days.

Communications with the controversial discount computer company have been largely severed. Its home page features only a large Microworkz logo, with no other links or services, where it had previously pointed to several pages of information on the company and its products.

See special report: PC free-for-all In addition, the Seattle-area company's toll-free number for ordering products or arranging service has been disconnected. Microworkz's regular phone line is still operating, but several attempts to speak to representatives of the company beyond an automated response were unsuccessful.

Although the company's exact status could not be determined, CNET News.com received an email purportedly from company founder Rick Latman that stated cryptically: "Microworkz has closed. FYI." The email address of the message had been used often in previous correspondence with Latman, who said earlier this month that he would resign as CEO on Nov. 15 but remain chairman for the time being.

One source close to the company said, "Operations have ceased in the main facility."

The curious plight of Microworkz is the latest chapter in the tumultuous business of so-called free or subsidized PCs, a treacherous terrain where nearly all players seem to have skidded into difficulties. Just yesterday, one of the more respected companies in this business--aptly named Free-PC--was sold to Emachines. As part of that deal, executives said, Free-PC's practice of giving away computers to qualifying customers will be halted.

In March, Microworkz sought to shake up the computer market by offering $299 PCs sold with a year's worth free Internet service. Demand was huge, but so were the complaints: Many customers said they ordered computers but never received them. The company has been the target of legal action, including a lawsuit filed this month by the attorney general of Washington state and another by EarthLink.

Technically, the PCs in these deals aren't free. Companies give the hardware to consumers, who in turn must agree to long-term Internet service contracts or accept spam advertising. Some of these companies also subsidize their hardware expenses through e-commerce alliances, essentially pay for space on the computer screen and sometimes give "bounties" to the PC seller.

These offers, however tempting to consumers, were often viewed with heavy doses of skepticism by industry executives and analysts who doubted whether the hardware costs could be adequately offset by advertising or other deals.

Caution mostly has proven correct. Most of these companies have been hit with a sea of complaints from customers about PCs that never arrived or refunds that never got processed. Some of these firms, such as Enchilada, have already gone out of business.

Others, such as FreeMac.com, have never completely got off the ground. The company was supposed to start shipping free iMacs to select customers in October, but as of last Wednesday, none had been shipped.

Free-PC seemed to get fewer complaints than other companies in this market but was not growing fast enough to remain independent, executives said. Although consumers were applying to get free computers, the company had only shipped out 30,000 boxes, short of company goals.

Still, while these companies appear to be flagging, large manufacturers have adopted their tactics. Virtually all of the major PC makers offer a free year of ISP service or at least a $400 rebate on consumer PCs. Emachines will also attempt to incorporate Free-PC's e-commerce deals.

In the controversy category, Microworkz stood alone. The company first marketed the "Webzter Jr.," a $299 PC with a year's worth of free Internet access. Although many tried to order the Webzter, few ever received one, and it was soon canceled.

The company next pitched the iToaster, a cheap Web appliance that came with free ISP service from AT&T. Later, the company said it was getting out of hardware all together and merely licensing its software and other intellectual property.

The company has been the subject of a number of small claims actions around the country. Acting on behalf of 95 consumers, the Washington attorney general's office filed a complaint stating that Microworkz violated state consumer protection laws by, among other things, failing to deliver computers or refunds to customers, failing to honor warranties and not delivering on promised free Internet service.

"It's all about the Webzter and how we did a poor job with the Webzter," Latman said earlier this month, referring to the state's lawsuit. "The Webzter was a disaster."

EarthLink, which earlier provided Internet service to Microworkz customers, also filed a lawsuit earlier this year claiming that Microworkz failed to pay for services. The company is also being investigated by the Federal Trade Commission, Microworkz executives acknowledged.