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DirectWeb: Pay for access, get a free PC

The start-up will give away PCs with its Internet service to the first 25,000 people who subscribe, feeding on the low-cost PC frenzy to lure new customers.

Start-up DirectWeb will give away PCs with its Internet service which it will launch tomorrow, feeding on the low-cost PC frenzy to lure new customers.

DirectWeb will offer Computer Darwinism a computer and monitor with a subscription to its Internet service to the first 25,000 people who subscribe. Prices for the service start at $19.95 a month and range up to $49.95, depending on the configuration of the PC. Customers have to give the PC back if they cancel their Internet service, but it is theirs while subscribing--a deal that is similar to many cell phone plans.

Put another way, DirectWeb users get a 333-MHz Celeron PC for $239.40 for a year, including Net access, or about $100 less than the most basic WebTV service for a year.

As with the other the low-cost, below-cost, or free PC offers that have emerged in the past few weeks, the question isn't whether these companies can give away a PC for next to nothing. The question is whether they can survive. Cheap PC Chart In most cases, the low cost PC is being offered as a way to lure customers to a Web site or to Web services, where companies will then try to extract revenue from them.

DirectWeb, for instance, has plans to turn its site into an e-commerce destination. FreePC is giving 10,000 select applicants a free Compaq machine, as long as they were willing to accept a barrage of advertising.

Gobi is also offering a similar service and has begun to ship PCs already. For $25.99, subscribers get unlimited Internet access and a new PC. Gobi is up front about stating that users must sign up for a 36 month term. If the service is terminated before the term is up, there is a penalty pegged to how long the user had the service: the earlier the service is terminated, the more costly it is for the subscriber since the PC must be purchased in effect. The PC configuration is similar to the one DirectWeb is offering.

Then there is Microworkz. It will ship this month a bare bones PC (minus floppy drive, CD-ROM drive, and monitor) for $299 along with a free year of Internet access from Earthlink.

"We won't make a living off this," said Microworkz chief executive Rick Latman, adding that a big part of the company's strategy is to draw users to the site so they buy more expensive machines. In fact, the Microworkz PC/ISP service deal comes about because of cost breaks and subsidies from its partners, Latman has said.

Observers remain skeptical. Is the PC really cheap enough to be a promotional doo-dad?

"Anyone can announce that they can make a $299 PC, but are they going to be able to produce 200,000 a month?" said Stephen Baker, PC analyst at PC Data. "Everybody thinks the model is there to give away the PC and make money on services or other things, but nobody has figured out how to make it work," he said.

"The whole segment of the market is in the trial stage," said Sean Kaldor, consumer electronics analyst at International Data Corporation.

IDC analyst Shelly Olhava believes that Gobi has, at least on paper, one of the more realistic business strategies. "You have to ensure that you will get money back for the PC to make it more viable," she said. This policy is not clear in DirectWeb's case.

Gobi will offer users upgrades throughout the life of the PC, said Ganesh Ramakrishnan, CEO of Gobi. Gobi will support an upgrade from, for example, a dial-up modem to a cable modem if it is supported in the user's area, he said.

"Removing barriers"
DirectWeb chief executive Dennis Cline echoes what companies like FreePC, Microworkz, and Emachines are preaching. "Why do less than 50 percent of the households have no PC and Internet connection ? It's pretty straightforward; we're in the business of removing barriers," he said.

The first 25,000 customers who subscribe to DirectWeb will receive "state-of-the-art Windows 98-based PCs plus unlimited Internet access via a proprietary, consumer-friendly portal, and technical support," the company's release said.

"DirectWeb plans to roll out in multiple markets and launch nationally by mid-1999 with an increased number of computers available to subscribers," the company added.

The PCs will be built by Ingram Micro. For $19.95, a subscriber will get a system with a 333-MHz Intel Celeron chip, 64MB of memory, a CD-ROM drive, modem, and 15-inch monitor.

For $29.95, the subscriber gets the basic configuration with enhancements: a Celeron running at 366 MHz, 128MB of memory, an 8.6GB hard drive, and a 17-inch monitor. For $49.95, in the PC comes with a 450-MHz Pentium II, a 10.2GB hard drive, and DVD drive.

To subscribe to DirectWeb, consumers should call 1-888-Invasion starting tomorrow.

The four "c's"
The DirectWeb service boils down to unlimited Internet access with a portal which offers the usual selection of categories including shopping, travel, and software. Cline says DirectWeb's business model is targeting content, computers, connectivity, and commerce.

The portal represents the content and the "free" computer is part of the package the user gets, he said. Connectivity is the Internet service. For e-commerce, DirectWeb has big plans, Cline said. Initially, the company will act as an agency to refer customers.

Later, DirectWeb will offer services such as an online credit card, called the DirectWeb MasterCard. "This will allow us to get into transactional revenue," Cline said.

News.com's Michael Kanellos contributed to this report.