t2k, I wanted to go back to an article on Bloomberg I read last night. Something struck me on this very point that we're discussing. Here's the article:
quote.bloomberg.com
Microsoft Hedges on 'Free' PCs Until Profit Proven
Redmond, Washington, Aug. 12 (Bloomberg) -- Microsoft Corp. is hedging its bets on ''free'' personal computers as a marketing tool to promote the Internet while the world's biggest software maker waits for proof that the concept can be profitable.
Microsoft will continue to team up quietly with small PC makers to offer rebates for PCs, probably stepping up the pace in coming months for the holiday shopping season, said Rob Enderle, senior analyst with Giga Information Group. Still, the software powerhouse won't unabashedly back the concept until it has evidence that money can be made, Enderle said.
Over the past two months, Microsoft has partnered with four companies to offer $400 rebates to PC buyers who sign up for three years of MSN Internet-access service. The aim is to boost revenue from online advertising and electronic commerce and to challenge No. 1 online service America Online Inc. ''Because of the renewed aggressiveness, particularly toward AOL, there's a lot more funding being pushed to MSN to make it a big player,'' Enderle said. ''But the benefit side (of free PCs) has yet to be demonstrated,'' he said, and that could take six months. ''Free PCs'' have gathered pace as PC and Internet access prices have tumbled, following the pattern of free cellular phones that generate revenue through service fees. PCs now sell for under $600, meaning rebates make them close to free, and Internet service increasingly is free.
Other Offers
AOL is offering $400 rebates to buyers of International Business Machines Corp. PCs who sign up for three years of service from AOL's CompuServe Internet access division.
Compaq Computer Corp. said today that its AltaVista Web search site will offer free Internet access to users who download a small screen on their PC to show advertisements as well as news. NetZero Inc. provides free Internet access to users who agree to view advertising while online.
Microsoft wants to rebuild its MSN Internet-access service, which has lost about half its subscribers and now has only about 1.5 million, according to analysts.
AOL has more than 17 million subscribers.
Microsoft has allied with PC makers Lan Plus Inc., retailer Staples Inc., computer store Micro Center and PC maker Tiny Computers to offer $400 rebates to PC buyers who sign up for three years of MSN Internet access.
Now the software powerhouse may go after higher-profile names. ''Everyone knows there's downward pressure on hardware,'' said Emily Meehan, an analyst at The Yankee Group. ''Dell, Compaq realize that, and they'll start reducing their prices.''
Attracting More Users
Retailers such as Sears, Roebuck & Co. may want to get on the bandwagon. ''It's a great way for Microsoft to target different demographics -- senior citizens, for example,'' said Meehan. ''They want to find ways to bring online the two-thirds of people who aren't online.''
It's unclear whether consumers will buy enough online to generate revenue and boost advertising rates, analysts said. ''These are going to be value-conscious consumers,'' said Bruce Kasrel of Forrester Research Inc.
Another risk is that users quit paying for the service before the contract is over. ''Technology is being developed that would allow (service) providers to turn off the machine (PC) if the user didn't make payments, but it's not there yet,'' said Enderle.
Microsoft, maker of Windows, the most popular PC operating system, has another concern: Cheaper PCs hurt software prices.
Users of cheaper PCs ''are less likely to use software because they're being used as ISP machines,'' Microsoft Chief Financial Officer Greg Maffei said recently. ''We're feeling pricing pressure,'' he said. ''OEMs (PC makers) are going to use this as a means to push the average price of Windows down.'' ''We'll be responsive, so as not to lose (market) share,'' he said.
I cannot help but believe that MSFT is attempting to play up these concerns (text highlighted in bold) in an effort (combined with the dreadful business outlook provided last Q) to convince the DOJ and Jackson that its Market is moving away from them and that they have little if any control over pricing in this environment.
Any thoughts???
Teflon |
