Micron joins the "free PC" movement

Micron Electronics will first charge the customer for an array of Internet services and then throw a computer in at no extra charge. The move follows the news earlier this week that the company would acquire NetLimited in a bid to expand its Internet services.

In recent months, even the most unlikely candidates--from start-up marketing firms to Internet service providers to computer retailers--have come up with twists on the free PC concept. Most of these plans bank on recouping lost hardware costs from service or advertising revenues.

Micron is bundling a mid-range PC with three years of Internet service from Earthlink, one year of its Micron University training courses, a three-year warranty, a subscription to Micron's discount peripherals and software store, and Microsoft Works productivity software. Micron is charging $1,087, which covers the cost of the services alone. Thus, the PC is "free," according to the company.

"We're not trying to target the first-time buyer, or the $300-PC buyer," said Michael Gale, chief Web officer for Micron. "We're targeting smart buyers who still want to buy brand names and are looking for more than just the PC. It's a service to our customers."

With the deal, Micron is including a Millenia desktop with 15-inch monitor, 400-MHz Celeron processor, 32MB of memory, 4.3GB hard drive, and 56-kbps modem. A $49 activation fee is waived if the bundle is purchased through the Micron Web site.

"We bring in quality at effective price points," Gale said. "We're making quality, high-price PCs available for a wider range of individuals, like BMW did in the 1980's with its cars."

But the company is embarking on a risky strategy by marketing the bundle as free, analysts warn, especially because the company already includes services like Micron University and its warranty with most of the regular PCs it sells. Consumers may be disillusioned after learning the details of the deal, said Schelley Olhava, an analyst at International Data Corporation.

"I just don't know how well this is going to fly," Olhava said. "People who are looking for 'free,' once they hear this is $1,000--they're going to walk out the door. It's far from free."

Micron is far from the first company to give away hardware in return for Internet services, although it says it is the first branded-PC company to do so. Companies such as Compaq Computer and Gateway have pursued similar strategies for several months, with some differences. These companies typically bundle Internet access with PCs, not the other way around.

In general, so-called free PC schemes have turned out to be fraught with problems, mostly because the small companies who have jumped into the market have sometimes been unable to handle the volume of demand or the customer service necessary with inexperienced buyers. Although well-equipped to deal with high demand, Micron will likely face problems of its own in pursuing this strategy, analysts say.

Micron currently sells about 2 percent of all consumer systems in the U.S., Olhava said, and the company is probably looking to boost that market share with the new initiative. But the plan could backfire.

"Everyone else is doing it, and they think they need to do it too, but they've traditionally targeted the high-end consumer. And that consumer isn't necessarily going to go for this deal," Olhava said, pointing out that more savvy PC buyers would already have an ISP of their own or may not be interested in paying for premium services like Micron University. "They may need to be doing it to get attention, but they shouldn't do it in a way that will get them negative attention--like advertise it as a free PC."

The program, which launches next week, will be called Free PC For Life, because customers can opt to extend their contract at the end of three years with another, new, computer. "We'll keep giving you PCs," Gale said.

"You could buy this PC for $1,000 on the market, but this way, you're pre-paying for the whole thing," he said. "It really is a free PC."