The recent spate of "free" or subsidized PCs are a hit with
customers and another headache for the nascent "Internet appliance" industry.
With the advent of the subsidized PC, in which consumers get free or
discounted computers when they sign multiyear Internet access contracts, makers of TV set-top boxes and other Net appliances are being deprived of one of
their chief messages: Namely, that their devices constitute a
cheaper way for most consumers to jump online.
"It definitely hurts their proposition, but it doesn't destroy it," said
James Staten, an analyst with Dataquest, who predicted that the free
PC movement would impact future Net device sales.
Net device makers, of course, can point to a number of potential advantages
their new products have over standard PCs. TV set-top
devices remain much simpler to use and don't require a lengthy boot-up
sequence. Internet service via set-top satellite boxes can also
significantly speed up Web surfing and provide viewing and multimedia
experiences ordinary PCs can't.
These devices, say proponents, complement, rather than compete, with
desktop PCs. And who says Net device makers can't cut deals with Internet service providers, just like the PC makers?
Still, the growing subsidized PC movement has reduced the economic advantages and
will force these companies to innovate, cut costs, and rethink some of their
more ornate hardware dreams.
"It certainly changes the market for the $700 screen phone," added Sean
Kaldor, a consumer electronics expert from IDC.
A recurring nightmare
In many ways, PCs have become a recurring bad dream for Net device advocates.
Every time, it seems, that devices appear ready to gain currency as
simple and inexpensive alternatives to the lumbering desktop computer, PC prices decline and neutralize the debate.
In 1995, Larry Ellison and other high-level executives began to promote the
Network Computer, or NC, as the cheaper and easier-to-manage successor to
the traditional desktop. Just as NCs appeared to be headed for
production in 1997, the sub-$1,000 PC took off.
Consumers were the initial
customers for cheap PCs, but price erosion later headed for the business
market. Although price parity wasn't the only problem, NCs flopped in both
consumer and business
One indication of the uphill battle Net device makers face is the relative
paucity of venture capital going into device start-ups. "There are not a
lot of people making the venture leap of faith into the device market,"
said Steve Jurvetson, managing director of venture capital at
Draper Fisher Jurvetson. "It
hasn't been a great category."
Intelligent TV set-top boxes can in some degree be considered the logical
successors to network computers. In fact, one of the leading set-top software
providers, Liberate Technologies, is
the old Network Computer, the prime NC advocate.
On a purely dollars-and-sense basis, PC backers have already closed the
gap with Net devices. For instance, under a subsidized deal from Circuit City, consumers pay zero,
after rebates, for select Emachines PCs
as long as they agree to sign up for three years of Internet service for
$21.95 a month. For $100, customers can get a printer and a monitor.
By contrast, WebTV boxes, which cannot perform the same panoply of
computing functions as a PC, range from $99 to $199, while standard ISP
service ranges from $19.95 to $24.95 a month. After three years, the full
PC in the Circuit City deal, with monitor and printer, costs $207 less.
Cost, however, is not the only consideration. Set-tops, Kaldor notes,
are much easier to use than PCs and can be turned on rapidly.
"The low-cost PC market does eat into the value proposition of the
information appliance market, but for a host of reasons, it shouldn't be
significant," he said. "Did the Yugo eat into the motorcycle market?"
High-speed Internet connections will also serve to enhance the set-top
experience. Satellite delivery costs more than standard ISP service, but it
can deliver Web content at a faster rate to homes. Another benefit:
Consumers can improvise their own "interactive TV" experiences, because they
can switch from TV programming to Internet viewing fairly rapidly.
A number of companies, including WebTV, are in the process of rolling out
such services, which will also include "digital VCR" capabilities that will
allow users to record and store movies.
Convergence or distinct markets?
Paul Liao, Panasonic's chief
technology officer and president of Panasonic Technology, said that
ultimately, the market for PCs and
TV-centric entertainment devices like set-top converters or game consoles
will not converge or impinge much on each other, even though both are
increasingly intertwined through common technology such as hard disk drives
and Internet connections.
"I don't think you're seeing a convergence of the markets. The market
represented by the family room is not merging with the market of the office
and home office. Nobody really wants to run an Excel spreadsheet on their
TV," Liao said. Likewise, nobody talks about watching a PC, he said.
But costs and technology remain an issue for these fancier access services,
said Staten. To get Internet via satellites, consumers have to buy a dish,
and the monthly service package costs more. Satellite providers also have
yet to work out all of the kinks in their technology, which can hamper or
limit Internet use. Cable service remains subject to geography.
There is also the multiple-access issue. A number of families already have
PCs hooked to the Internet. Are they really going to want to invest in a
second device and subscribe to additional monthly services? Likewise, will
new users be drawn to PCs, which are promoted as business tools and
education aids, or a box designed largely for entertainment? WebTV, for instance, currently only has around 800,000 subscribers, Kaldor points out.
In the face of PC popularity, Net devices increasingly may have to become home
servers, predicted Staten, a device that can also provide
Internet connections to other appliances or link up various machines.