IBM to offer consumer PCs through DirectWeb

IBM is partnering with DirectWeb, a company that offers subsidized PCs for the consumer market. DirectWeb made its debut last year, following several firms touting free or nearly free computer offers, such as Free-PC.

DirectWeb plans to update its own deals for a low-cost PC bundled with Internet service. Where last year the company offered a generic PC, this year it will push an IBM computer complete with a 450-MHz AMD processor and 15-inch monitor in return for a payments of $29.95 per month for three years.

A system with a larger monitor and printer is available starting at $39.95 per month for the same term, the company said.

DirectWeb executives said that Big Blue's image--along with its hardware and software support services--should go a long way in quieting concerns consumers may have had about the reliability of discount PC deals.

"Clearly there's a benefit for us, because if the number one question is, 'Who is providing service?" it certainly helps us to say we (are offering the) IBM brand," said Dennis Cline, DirectWeb CEO.

Compaq and Toshiba are the only other notable PC companies to have offered computers through third-party computer service providers.

Free-PC kicked off a stampede last year by offering an ad-based free PC package. Ads alone weren't enough to sustain Free-PC as a business, however, and the company was later bought by Emachines.

DirectWeb and others hope to survive by enticing consumers with PCs and making money on multiyear Internet service contracts and e-commerce deals.

One question that has plagued the industry is whether customers would want to remain locked into a dial-up Net contract when broadband options are becoming increasingly available. Cline said his company plans to offer high-speed upgrades later this year, although he doesn't expect many to take advantage of the upgrades, as high-speed connections are expensive--around $40 per month.

DirectWeb is working to maintain its presence in the market, but companies that entered the free PC frenzy last year haven't fared as well.

New York-based Enchilada folded just weeks after announcing its "free" PC offer. Microworkz, which offered heavily discounted PCs bundled with a free ISP service, was besieged with customer complaints about PCs or refunds that never were delivered. That company eventually went out of business.

"Free-PC came on strong but really couldn't deliver. There were a lot of problems with those various business models," said Cameron Duncan, an analyst with retail market research firm ARS. "It's one thing to give a computer away and another to support (it) from month to month."

Still, if the notion that a business can exist solely on profits from Internet service and e-commerce deals hasn't been proven, the idea has taken hold in the PC industry as companies increasingly look to boost slim margins from hardware sales.

Emachines, for instance, is preparing to offer stock to the public. The company reported that it managed to turn a slim profit last quarter after barely a year of operations, thanks to revenue generated from its Internet services.

The hype behind ISP rebates has in large part died down, Duncan said, as it has become more of a standard part of advertising PC offerings. Duncan thinks the use of rebate programs will taper off this quarter as CompuServe and others try to figure out whether they are making money off these deals.

For its part, IBM seems to have found a way to stay relevant in the consumer market.

IBM last year decided to make a strategic retreat, deciding that it wouldn't offer its consumer desktop PCs in retail stores after it continued to lose money in the cutthroat consumer market. The company is still selling directly to consumers, but it is exploring ways to expand its presence while avoiding the headache of managing retail inventory levels.

"We are looking for creative ways to move product through," an IBM spokesman said. "For us, it's a cool new way of growing our market share."