Emachines CEO: Profits to flow from deals

The company is aggressively looking to team up with e-commerce companies and Internet service providers (ISPs) that will allow Emachines to capture revenue from ads, electronic transactions and monthly service, said chief executive Stephen Dukker in an interview at the Comdex trade show here.

Other companies are engaged in similar plans, but Emachines seems to be one of the most gung-ho of the pack. These other companies typically state that they plan to make a profit off hardware, regardless of outside deals. By contrast, hardware for Emachines is a conduit for getting e-commerce revenue.

"The PC is the last invasive step between the consumer and the Internet," Dukker said, and is thus ripe for what he calls "pre-connect partnerships."

"The PC is only one component in the revenue stream? "If all we were in it for was the PC, we wouldn't be in the business," he added.

Emachines rose to prominence last year as one of the first companies built solely around very cheap computers. Selling systems for no more than $500, the company quickly rose to the top five PC sellers in retail markets. The quick ascent threw many of its bigger computing rivals for a loop and stoked the PC price war.

But analysts have long pondered the central questions for companies like this: How can any company make money selling such cheap computers? Moreover, won't the company be decimated once the big PC companies decide to play in the lowest end of the market?

Dukker's plan is to auction off as much real estate on its keyboards to online merchants as possible. The company will also take a cut of all Internet service revenues from Emachines customers, he said. The low-cost PC then becomes a way to drive more lucrative service profits.

Emachines is hardly the first or the largest PC company to target e-commerce as an appealing way to make up for cash lost on lower and lower priced systems. Gateway, for example, has found considerable success with its lateral Internet businesses, which include an online store, its own ISP and a recent deal with America Online. (AOL is also an investor in Emachines).

Still, established PC companies largely state that hardware in an of itself needs to remain popular.

"We want to be the people selling the pans, not necessarily pan for the gold ourselves," is how Mike Weir, marketing manager for business PCs at HP, described HP's overall philosophy.

"Our model is much deeper than just selling at low prices," Dukker said. Although most PC companies provide links to Internet sites or services via the keyboard, in its upcoming line of PCs, Emachines is taking it a step further by providing dozens of direct links to e-commerce merchants. The company will get a cut of each transaction, he said.

Dukker will soon be trying to convince investors that his idea can bear fruit: The company is set to go public between February and April of next year. So far, most PC hardware stocks aren't faring as well as purely Internet IPOs--often referred to as "dot-com" companies--so Emachines is farm from being ensured a warm welcome on Wall Street.

Emachines does bear a resemblance to an Internet player in one respect: The company is currently sacrificing profits to build its brand.

"We knew there would eventually be competition," Dukker said. "I want to lock out the other competition. I want to make it very painful," he added, explaining that he would rather continue to lower the price of a PC, rather than sacrifice market share.

After creating havoc in the PC market, Emachines hopes to make gains in the notebook market. The company is showing off new computers at the show, including the $999 ESlate notebook computer, as well as new versions of its desktop systems with faster processors.