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The week in review: Free PCs plans reach new level

America Online and Emachines and leading retail chains Circuit City, CompUSA, and Best Buy introduce "free PC" schemes, conferring new credibility on the strategy.

America Online, strategic partner Emachines, and leading retail chains Circuit City, CompUSA, and Best Buy introduced "free PC" schemes, conferring new credibility on the strategy of subsidizing low-cost systems with Internet access contracts.

Emachines and AOL's CompuServe will offer consumers who sign up for three-year CompuServe memberships a rebate of $400 on the purchase price of Emachines computers--virtually the entire cost of some models. Building on similar promotions by smaller manufacturers, the move makes it clear that PC manufacturers see Net access as a way to underwrite low-cost systems.

AOL everywhere, redux
Under the terms of the agreement, Emachines will feature Net access software from AOL and its subsidiary unit CompuServe via desktop icons on all of its PCs.

The online giant also made an undisclosed investment in the low-cost PC maker, underscoring important industry changes. Of late, established companies such as Gateway and Dell have added Internet service to their PC products in hopes of offsetting razor-thin profit margins in the hardware-manufacturing business. Then too, these firms have been experimenting with new, more limited kinds of devices that pare back on features not needed to get online.

Circuit City and CompUSA too said they would begin offering a $400 rebate on desktop PCs to customers who sign a three-year contract with CompuServe, while Best Buy has teamed up with Prodigy. Circuit City and Best Buy are offering their subsidies in the form of mail-in rebates, while CompUSA will offer an in-store discount.

A party to three of the four promotions, AOL has all of a sudden taken on a leading role in the free PC movement. The sweeping move can be seen as another of the Dulles, Virginia, company's relentless promotional efforts. In Europe, AOL is thinking of offering "free" Net access, a service that would profit from a cut of the charges collected on all local calls.

CMGI will acquire 83 percent of Compaq Computer's AltaVista Web portal for about $2.3 billion. Under an agreement that includes and Zip2, the two companies will market Internet services to both businesses and consumers and try to drive the Internet PC market by combining Compaq's consumer PC business with CMGI's network of Internet destinations and technologies.

Taiwan's Via Technologies will acquire National Semiconductor's Cyrix chip business. The two companies also signed a manufacturing deal. The agreement paves the way for Via to produce chips for PCs, including the first true clones of Intel's low-end Celeron processor. Via makes chipsets.

US West will enter into negotiations with Qwest Communications for a possible merger, following that company's second unsolicited takeover bid last week. Frontier also announced it would begin talking to Qwest.

An iMac knockoff released last week at PC Expo in New York has drawn a lawsuit from Apple Computer that could impact the future of copyright law. The company named Future Power and Korean conglomerate Daewoo over a $799 system. Apple continues to ponder coming out with multicolored Palm handhelds under its own name, although the project has been put on the back burner to ensure that its new consumer portable gets out the door.

The Securities and Exchange Commission is reviewing potentially improper accounting procedures at Microsoft, specifically investigating how the company accounts for its financial reserves and related policies.

AT&T, Excite@Home's largest shareholder, is prepared to offer five months of free service to more than 1,000 San Francisco Bay Area customers for the high-speed Net service's latest snafu. Some users have experienced slow download speeds or have had no service at all since early May. Other users have groused about a new upload bandwidth cap, saying they are not getting the same service they were promised.

Market pressure
Pricing pressure in the server market is squeezing major manufacturers' profits, indicating that the glory days of rapid growth are over. Unit shipments of servers are up while revenue is down, and for manufacturers selling servers at the low end of the market, the forecast is chilling.

Chipmakers are racing to develop a new generation of processors that should make networking hardware faster and easier to upgrade. Start-ups are currently leading the way with the most innovative technology, and products using the new chips should arrive on the market by the first half of 2000.

Lucent completed its acquisition of Ascend and kicked off plans to vie for Internet service provider (ISP) and communications carrier dollars in the networking market.

Multimedia moves
Yahoo is seriously considering a foray into the Internet music player business. The Net directory giant has held talks about acquiring Sonique, an audio player that can handle Microsoft Windows media files, MP3 files, and audio CDs, according to sources familiar with the negotiations.

WebTV Networks reached an agreement with RealNetworks to give WebTV subscribers the latest versions of RealAudio, a feature customers have been demanding. The deal is striking since Real has clashed with Microsoft, WebTV's parent.

While portal sites are basically "cross-platform"--written to offer their content and services to users running Microsoft's Windows, Macintosh, Unix, or other operating systems--enhanced features often run only on Windows.

Be Incorporated appears to be gaining popularity as a way for computer makers to build an ultra-cheap computer without paying the "Microsoft tax." Last week, Microworkz and later iDot announced cheap machines running BeOS from Be Incorporated.

Still busy
Congress passed legislation that looks to limit lawsuits arising from the Year 2000 computer bug, based on an agreement reached Tuesday between lawmakers and the White House.

The Clinton administration issued a report calling for more investment to train Americans in the kind of high technology that has driven much of the nation's economy, and moved to ease restrictions on technology exports, bowing to the fact that computing power of consumer products has begun to surpass limits meant to protect national security.

As more competitors join the domain name registration race, ICANN, the nonprofit corporation charged with overseeing privatization, took steps to wrest dominance from Network Solutions. NSI is also being investigated for antitrust violations by the European Union, and its site was hacked.

The state of Connecticut nixed negotiations with services giant EDS, dumping plans for a contract worth up to $1.5 billion to privatize the state's computer systems. Pressured by state union workers and faced with intense taxpayer and legislative scrutiny, Connecticut Gov. John Rowland scuttled the controversial deal.

Worldwide revenue from computer services rose 11 percent last year to $49.9 billion, fueled by demand for faster telecommunications and new services such as electronic commerce and the Internet.

Siebel Systems and Microsoft will combine Microsoft's SQL Server 7.0 with Siebel's Web-based front-office application suite, pushing customers to abandon Oracle databases for a low-priced upgrade. The latter has been making an aggressive move into customer relationship management software, and vowed to topple market-leading Siebel.

Security software companies trying to provide "one-stop shopping" have suffered declining revenues, while more specialized firms are faring better. Network Associates and Axent have fallen victim, while Internet Security Systems and Check Point are going well.

Companies selling the technology that links retailers to their customers via email, online chat, and voice are consolidating at a rapid clip to better meet the growing customer service needs of Internet retailers.

After months of hype swirling around Starbucks' brand extension to the Net, some industry observers now are wondering whether the company is straying too far from its coffee-shop roots and investing into a dark hole in cyberspace.

Also of note
Travel site activity jumped nearly 60 percent from April to May, as surfers planned summer vacations ? Microsoft delivered an initial Windows 2000 "release candidate," suggesting the long-delayed Windows NT successor will arrive by year's end ? AOL 5.0 is slated for release later this year and will include new features such as an interactive calendar and enhanced search and downloading capabilities ? Compaq will offer direct sales via the Web in Europe ? Robyn Abrams abruptly resigned as president of Palm Computing after just six months on the job.