CenterBeam, Microsoft to buy back PCs

The start-up is offering to "buy back" companies' PCs for $500 in exchange for an agreement to use CenterBeam's business applications and services, which cost $165 each month per user.

The concept appears to be a variation on the theme of "free" PCs for consumers, offered by start-ups such as DirectWeb, Enchilada and Gobi. Those companies offer a PC and an Internet connection service in exchange for a monthly fee, typically spread over a period of three years.

CenterBeam, on the other hand, is targeting small businesses with the hope of locking them into longer contracts, which are potentially more profitable. At $165 per user, this comes to approximately $2,000 per single "seat." The offer is good from today until the official launch of Windows 2000, expected to take place in February of next year, the company said.

CenterBeam, which was founded earlier this year, said it has teamed with Microsoft to launch the buyback program. CenterBeam's service is built on Microsoft's forthcoming Windows 2000 operating system.

The company said it will provide small businesses with replacement "name brand" PCs, high-speed digital subscriber line (DSL) Internet access, customer support, daily backups of all data and access to business and process applications developed specifically for the Internet.

As part of the program, CenterBeam will work with national charities to distribute the purchased computers to local inner-city schools, the company said.

"The idea is to offer to small businesses the same technical sophistication of (product support as at) big companies," said Sheldon Laube, CenterBeam's chief executive. He added that the beauty of the service is that all support is done at CenterBeam using remote control software from Microsoft. "We can see your screen and move your mouse," he said, claiming that this is equal to or better than onsite staff.

The start-up, based in Santa Clara, Calif., is privately held. It was launched with a $20 million investment from companies including Microsoft, CrossPoint Venture Partners, Accel Partners, NEA and USWeb/CKS. Laube was a co-founder of USWeb.

In the next few weeks, CenterBeam plans to announce that a "top five" PC maker will be the provider of the computers, according to Laube. That PC manufacturer also will invest in CenterBeam, he said.

Laube, who was chief technology officer at Novell before he started USWeb, cited four critical developments that make the strategy possible.

Windows 2000 is the first key component; Windows 95, Windows 98 and Windows NT are not up to the task of remote management and are not stable enough, he said. Second is the wireless network, which allows CenterBeam to set up a network of wireless PCs and printers. CenterBeam is using a Lucent 802.11 Ethernet network which delivers 10-megabit-per-second data speeds.

Third is the widespread deployment of DSL, making high-speed Internet access and remote management possible. The fourth factor is the availability of PCs priced below $1,000. Laube cited the new Compaq iPaq Internet PCs as an example of the type of PC that will be used.

Laube said that for a typical client, CenterBeam will order and set up the DSL. Then the server is delivered, and the user plugs it in to the DSL and wireless access points. After that, CenterBeam does all configuration remotely. For users with older systems, CenterBeam can set up a "mixed" environment, but that "over time, the goal is to get rid of old systems," he said.

Software that the companies will provide includes Microsoft Office 2000, Exchange email and access to the CenterBeam MarketPlace, a network of Internet-based business services such as human resources, recruitment, sales force automation and e-commerce systems.

In the midst of this consumer nirvana, however, analysts and others in the industry are seriously questioning the viability of these consumer strategies. A close look at the numbers shows that the companies offering these services at best net a few hundred dollars in gross profit per customer. And that relatively small sum is spread out over the three-year Internet service provider contracts, which provide the PC makers with alternative revenues designed to offset the giveaways.

Many of these strategies fraught with profit pitfalls, according to analysts. CompuServe, for example, is paying $400 to customers who sign up for three years of its service. And FreeMac says 500,000 people have applied to take advantage of the company's free iMac offer.