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Apple's Columbus a bold bet

As its star fades in traditional markets, Apple will graft a bold, new strategy to its ongoing attempt to ward off the Wintel onslaught.

As details of the so-called Columbus project continue to emerge, Apple Computer (AAPL) appears to be betting much of its future on uncharted but potentially vast consumer markets.

While its star fades in its traditional computing business, Apple will graft a bold new strategy on its continuing attempt to ward off the Microsoft-Intel onslaught.

The computer maker apparently is gambling on the wide-open market for "convergence" devices. It is an area that neither Microsoft, Intel, Compaq Computer, nor any of the large Asian consumer electronics have figured out yet, leaving it up for grabs.

Named for the fusion of consumer electronics and computing technologies in a single device, the convergence market is becoming the Holy Grail of the electronics, PC, and broadcasting industries. Apple's entry into this space will be a device based on the Macintosh operating system that combines the functions of a WebTV-like Internet access device with a CD or DVD player to create an easy-to-use, low-cost product, as first reported by CNET'S NEWS.COM.

Generically referred to as a "media player," the device will be the cornerstone of the Columbus project, the code name for Apple's overall consumer strategy. Initially reported as the name for the media player, Columbus also encompasses low-cost Macs, education products, portables, and handhelds that are on the horizon, NEWS.COM has learned from industry sources.

The media player device figures prominently in this strategy because many analysts think that the next big leap in the computer market will result from sales to the large body of consumers who have previously been averse to the vexing world of personal computing.

"The convergence between the PC and other appliances is the natural evolution of the PC. You're seeing everything coming closer together," says Sherman Whipple, partner and senior strategist at Whipple, Sargent, and Associates, a strategic planning and research firm. Whipple says these information appliances will operate via a remote control device, which will provide access to the computer's functions.

Microsoft's WebTV device is the first moderately successful example of this new breed of devices. Users have not exactly adopted them in droves, however, and marketing gurus seem to be at a loss in divining the formula that balances cost with features while enticing less techno-savvy consumers.

One issue is data bottleneck. The WebTV and similar devices dial into an Internet service provider that carries the WebTV service. Such connections take place at a relatively slow 56 kbps--good enough to view Web pages, but not fast enough for multimedia and therefore not terribly compelling.

A number of companies are betting on putting PC-like features into digital set-top boxes. Future digital set-top boxes would offer electronic programming guides, video on demand, and interactive advertising, with the cable connection acting as the multimegabit gateway to the Internet.

Companies such as Sun, Oracle, Scientific Atlanta, General Instrument, Sony, and a host of others are looking to sell these advanced boxes to the approximately 65 million U.S. households with the older, more limited set-top boxes. Tele-Communications Incorporated, the cable industry giant, has placed an order for between 5 million and 11 million of these boxes but isn't expecting delivery until sometime in 1999.

Even then, the infrastructure to drive the growth of digital set-top boxes or WebTV-like Internet terminals will not yet be in place, says analyst Gary Shultz of Multimedia Research Group. Broadcasters are still in the midst of installing equipment for sending out digital television and data signals, he said.

Apple's media player will apparently go beyond offering a snazzy way to connect to the Internet and offer features such as CD-ROM or DVD drives, making it a dual-purpose, inexpensive "living room" computer product. The device could even offer enough processing power to run applications such as games on the device itself without needing a fast Internet connection.

If the devices take off, Apple could profit in a number of ways. The devices need to connect to ISPs, and Apple could try and sell servers that use Rhapsody, its upcoming next-generation operating system. For software developers, encouraged by the potential emergence of a new market for multimedia content on Web sites and CDs, Apple could offer tools based on its QuickTime technology to create content and WebObjects software to build e-commerce-ready Internet sites--all on Apple hardware.

The move into consumer electronics isn't necessarily a make-or-break move for Apple. It will continue to push into its traditional customer base of publishing and education with new systems and faster processors, but a return to the company's glory days of industry-wide influence over computer design--as well as tremendous profitability--may hinge on the new course.