Dell deals for Net access on PCs

Dell Computer today outlined a two-pronged strategy for making it easier for consumers and small-business users to get online, which it hopes will raise its status in one of the few markets in which it doesn't have a commanding presence.

Dell is teaming up with AT&T WorldNet, SBC Communications, and Excite to provide simplified Internet access service on Dell's Dimension line of computers for home and small offices.

SBC, which owns telcos such as Pacific Bell and Southwestern Bell, will jointly market high-speed digital subscriber line (DSL) Internet access service with Dell in select Texas and California cities. DSL gives customers Internet access over standard phone lines that is up to 50 times faster than current analog dial-up modems. The service is expected to be available in early 1999.

Customers interested in standard dial-up service will be able to sign on with AT&T WorldNet using a simplified installation procedure. They then will be connected to a personalized home page, or portal, provided for in a deal with Excite.

Dell's ConnectDirect program is a response to data showing that one of the primary drivers in PC purchases now is Internet access.

"We are really announcing a broad strategy with a few agreements to kick it off," said Paul Bell, senior vice president of the Dell Home and Small Business division, adding that more deals could be in the offing.

Perhaps more importantly, an increasing number of PC companies are pursuing affiliations and comarketing deals for Internet services as a means to increase revenue. Consumer PCs typically sell for lower prices than corporate PCs and have lower profit margins associated with them.

"I think [the impact of this program] is going to be very positive," said Bell. "We have half a million different consumer customers this year, and we talk to them directly. This is a natural extension of what they like about us. They have a choice of hardware than can get build-to-order, and we [are taking] leading providers in the Internet and portal space and factory loading them into systems."

Dell is following other large consumer PC vendors such as Compaq and Gateway in this regard. In June, Compaq launched new consumer PCs with Internet access provided by America Online or the cobranded GTE-Compaq Internet connection service and a start-up page provided by Yahoo.

Gateway's consumer computers are configured to offer Gateway.net, the company's Internet service. Gateway contracts with a third party to provide Internet access services, and receives a portion of the revenue generated by new customers.

Dell declined to disclose the terms of its deals with WorldNet, Excite, and SBC.

The announcement follows Dell's intention, announced earlier this year, to introduce personal computers with high-speed digital modems that work over traditional copper telephone wires. Dell has already paired up with US West to offer DSL service by the end of 1998.

For Excite, the agreement could potentially give the portal a significant boost in traffic and brand awareness. Because the deal labels Excite as Dell's preferred portal partner, Excite could also provide the same co-branded navigation for other ISP partnerships.

"Except for AOL, no matter (which ISP) you use, you will have the same browser that will default into Dell's own custom-developed page with Excite," said Abhishek Gami, an analyst at William Blair & Company.

Gami said partnering with a direct PC manufacturer could also help Excite tap into the inexperienced Internet user market. For example, when PC buyers interested in the Internet buy a new Dimension, having Excite associated with the Internet can have a powerful effect.

"Excite has been doing well at targeting people on the Internet," said Gami. "Now they're going to get people right out of the box. That's pretty powerful; that's great positioning."

The agreement does not mean that Dell can't partner with other portals, although Dell said its intention for now is to use just Excite.

As demonstrated with one of Excite's distribution partners, AT&T WorldNet, loyalty to one portal brand is unheard of. The ISP now has bundled access service partnerships with its competitors Yahoo, Lycos, and Infoseek.

For a company like Excite, traffic is central to its success and stock value. Whether being featured this way will yield a huge boost in traffic remains to be seen. Also, the number of Dimensions to be shipped this year remains to be determined.

"I don't think this will significantly affect Dell's business," said Phillip Rueppel, research analyst with BT Alex Brown, who notes that Dell is also following several other PC makers who have aligned themselves with portal and Internet service providers. "What's more important is that Dell's business model seems to be on track," he said.

"The consumer market is actually probably 10 percent or so of their business," Rueppel estimated. Both Compaq, Gateway and now Hewlett-Packard have a larger share in the consumer space, he said, in particular given that Dell has not participated in sub-$1,000 PC market segment where significant unit growth is occurring, he added.

Still, Dell's efforts are not insignificant--company officials say its Home and Small Business division is one of the fastest growing units in Dell of late.

CNET News.com's Jim Hu contributed to this report.