Enchilada is the latest entrant into the free, or subsidized, PC market. Technically, the PC isn't free. These companies recover the cost of the box through long-term Internet access contracts with the PC owner, lateral advertising deals, or-as in the case of Hand Technologies--agreements that obligate the PC recipient to sell products and services via a multi-level marketing program to other customers.
But although strings exist, these deals are expanding PC usage by lowering the initial investment involved in getting wired. Many more of these deals are expected this year.
And, if Enchilada is any indication, the initial investment is getting lower all the time. Enchilada will offer a free PC complete with a 300-MHz AMD K6-2 processor, Windows 98, a 15-inch monitor, and unlimited Internet access for $19.99 a month, or roughly the price of standard Internet access. The company will also send technicians to consumers' homes to set up their PCs.
The catch? Participants have to agree to a four-year contract for Internet access, said a spokesman for the company, or pay $799 in advance for the entire package. The company, which is a division of Simple Solution, also charges $99 for shipping and handling. PC upgrades are permitted after two years.
Enchilada in many ways is aiming at the first-time user market, said a spokesman. Along with providing free installation, the company is creating its own help site, SOS Enchilada, that will answer basic questions about navigating the Web, purchasing products online, downloading plug-ins, and how to use chat sites.
"Our slogan should be 'We want to hold your hand,'" the spokesman said, who then added that it would probably be too expensive. The company was founded by former executives from the Garment district in New York.
The company's PCs are fairly complete, especially compared to some other free-PC offers. The Webzter Jr. from MicroWorkz, for instance, does not come with a monitor or CD-ROM drive. The Webzter Jr. sells for $299 but comes with a free year of unlimited Web access, which effectively neutralizes the cost of the PC.
Other product bundles are also available. The "Enchilada Grande" package includes a Lexmark color printer, an office suite package with word processing, database, graphics, assorted games, and a four-year on-site warranty for an additional $9.99 per month over four years, or $1,199.
Enchilada's monthly fees are on the lower end of the scale for companies following the "cell phone" business model of giving away the hardware with a service contract. However, the four-year length of the obligation is longer than similar companies that charge a monthly fee. Gobi, for example, charges $25.99 a month, but only obligates customers to a three-year contract.
Gobi also permits customers to cancel the contract and pay for the remainder of the PC. Enchilada currently follows a "no substitutions" policy and does not as yet have an early termination program, according to the spokesman.
How this market will develop and which strategy will win has yet to be seen. What is certain is that the free-PC phenomenon will endure. Intel executives, among others, have said that numerous companies are experimenting with free PC business models at present.
Intel, among other chip makers, is also trying to facilitate the process. Intel for instance, is now working with some of these free-PC companies, showing them processor road maps, providing them other technical information, and in general treating this as a new branch of the PC market.
"We're working with them on the cost models. Obviously, a free PC isn't free," said Paul Otellini, general manager of the Intel Architecture Business Group. "This is probably analogous to the kinds of discussions we had when retail emerged."