Circuit City will begin offering customers a $400 rebate on all desktop PCs in the store, rendering some of the cheaper systems in the store nearly free. This rebate is contingent upon customers signing up to a three-year contract with Internet service provider CompuServe.
Circuit City's new program is one part of a larger effort among hardware manufacturers, service providers, and now retailers to make up some of the profits they have lost to rapidly falling hardware prices. Like cell phones, desktop PCs are becoming a commodity offering for these companies, which are trying to offset the seemingly irreversible price declines with service revenues.
Computer makers like Gateway and Compaq have begun bundling Internet service with their PCs for some time, but the phenomenon is relatively new to the retail market.
Although hardware manufacturers have certainly been hard hit by the trend toward PCs under $500, retailers have been squeezed even tighter, analysts say. In launching the program, Circuit City joins Best Buy, which is expected to offer a similar rebate this week. Other nationwide retailers are expected to launch like programs in the coming months.
Circuit City is specifically promoting the Emachines 333CS, which is to be sold for $475 in the store. With the CompuServe $400 rebate, along with an additional $75 rebate from Emachines, the system is essentially free. Circuit City will also be promoting monitor and printer rebates, offering them as a bundle for $100, after mail-in rebates.
Separately, Emachines and America Online today announced a strategic initiative that gives AOL a minority stake in the bargain PC maker. CompuServe is owned by the online service.
Many companies have attempted various methods of giving away or subsidizing PCs, with varying prospects for profitability or success. Often, these companies are start-ups that may lack adequate service operations to support large numbers of customers.
Still, analysts are cautiously optimistic about these retail strategies. For one thing, rebates are not always redeemed, according to Shelly Olhava, an analyst with International Data Corporation, who pegs the actual redemption rate at around 60 percent. "It's not the near 99 percent that you would expect," she said.
In addition, first-time PC buyers should be receptive to bundled Internet access, which bypasses the somewhat arduous chore of choosing and setting up an ISP.