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Gobi aims for 1 million "free" PCs

The start-up is targeting one million PCs with its Internet connection service. Its strategy may be more viable than other similar offers, analysts say.

Gobi is the latest entrant into the free PC maelstrom, but this time the plan seems more realistic, analysts say.

Gobi today announced it has begun offering a full-featured PC free with Internet connection service. Although other companies are making similar offers, the difference with Gobi is that the company is pricing its services in such a way that its costs can, according to analysts, reasonably be recovered. Perhaps not coincidentally, the company was formed by former investment bankers.

Although the company gives customers a full-featured PC for free, Gobi charges $25.99 a month for Internet service, a slight premium which allows the company to recapture the cost of the box, and requires that customers sign a three-year commitment. Customers can cancel the service earlier, but they then have to pay for what's left on the PC budget. Gobi is refreshingly up-front about particulars of the service.

Though they aren't bashful about exclaiming their ambitious goals."We think we can achieve one million [subscribers] over the course of a year," said Ganesh Ramakrishnan, Gobi's chief executive.

The free, almost free, and low-cost PC market has been jolted in recent weeks by a series of announcements from various companies offering to get people on the Net for seemingly impossible prices. DirectWeb, for instance, yesterday said it would give PCs to 25,000 consumers as long as they also subscribe to Internet access for $19.95 a month. Microworkz, meanwhile, is taking orders, but not yet shipping, a $299 PC with a year's worth of free Internet access, which is similar to DirectWeb's offer. Other companies are, in essence, raffling off a PC.

These companies may be forming the initial group of players in a new PC-with-Net industry founded on a radically different model than that of the established PC makers--or Internet companies for that matter.

While they all differ in their approach to customers, most also share an underlying characteristic. Few of them seem keen on making money on low-end offers. DirectWeb appears to be using the offer to promote more expensive connection services as well as an e-commerce site. Microworkz uses the offer to draw people to their higher-end machines.

Gobi seems to differ in the sense that the promo is the point. "You don't have to figure out what computer to buy and don't have to wonder what ISP to use. You just pick up the phone and say you want to get connected," said Ramakrishnan.

Ramakrishnan and his partners, including company president Sudhir Shrotri, were formerly investment bankers at D.E. Shaw, a firm where Amazon's chief executive Jeff Bezos worked.

Gobi has hooked up with two Computer Darwinism major partners. Concentric will be the main provider of ISP service and Solectron, one of the largest contract manufacturers of computers in the world, will build the PCs.

"We're in the business of finding the right partners and integrating them," said Ramakrishnan.

Gobi's subscription policy approximates what customers do when they buy a cell phone. 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.

International Data Corporation 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 is not clear in DirectWeb's case, according to Olhava.

Gobi has been conducting a "contained field study" in Toledo, Ohio, "to make sure we're ready before going national," Ramakrishnan said.

Lofty goals
Gobi, which plans to start a national advertising campaign next week, has lofty goals: Gobi will offer users upgrades throughout the life of the PC, said Ramakrishnan. It plans to support an upgrade from, for example, a dial-up modem to a cable modem if the service is offered in the user's area, he said, though the company is still working on this strategy and talking to potential partners about this.

The Gobi PC comes with a 300-MHz Intel Celeron processor, 32MB of memory, 3.2GB hard drive, Microsoft Windows 98, CD-ROM drive, a graphics chip from ATI Technologies, speakers, a 56-kbps modem, and a 15-inch monitor.

Gobi sums up its policy on its Web site: "Gobi gives you a fast new computer, unlimited Internet access, another computer after 36 months. You give us: $25.99 per month for the Gobi service, $29.99 start-up fee, shipping and handling for $45.00. Gobi requires a 36 month commitment from you. If you stop using Gobi before then, you keep the computer and pay a termination fee."