The $499 iPaq Home Internet Appliance IA-2, which is sold at RadioShack, is basically free with a $100 rebate from Compaq and a $400 rebate from MSN when buyers subscribe to three years of its Internet service.
In August, Compaq introduced the IA-1 model with a flat screen. It costs $599 before the MSN rebate, or $199 with the three-year agreement.
"We just want to provide a wide range of choice," MSN product manager Sarah Lefko said.
With the latest addition, there are now three MSN Companion devices--the two from Compaq and another introduced last month by Emachines. That unit sells for $349 before the $400 rebate, although it does not come with a monitor.
MSN Companions are limited to MSN Internet service, which offers Web browsing and email.
Some analysts have questioned whether the current crop of desktop Web-surfing terminals are cheap enough or simple enough to unseat the PC. But Lefko said Microsoft has been pleased with the initial response.
"We're real happy with the results we've gotten," Lefko said.
Using a traditional cathode ray tube (CRT) monitor has both pluses and minuses, said Bryan Ma, an analyst at market researcher IDC. On the positive side, he said, the cheaper price--and the distribution through RadioShack--could help attract more of the mass market.
"CRTs present a lower-cost alternative to those prohibitively high-priced flat-panel screens," Ma said. "What you are going to lose is the sexiness, most obviously."
Ma also notes that flat-panel monitors help distinguish Internet appliances from cheap PCs and allow them to fit into tighter spaces in the house, such as the kitchen.
"By using a CRT, it begins to resemble a PC," Ma said of the new device. "You run the risks of confusion and competition."
Although the MSN Companions have been marketed primarily to people who don't already have Internet access, Lefko said it is possible that Microsoft will also develop appliances to be marketed to people who already own a PC and surf the Web.