The technology prophets that have predicted the end of the PC have always been wrong, because the PC continues to reinvent itself with new functions. It's versatility is it's appeal. How many times have you heard that the Internet appliance would replace the PC? The results so far:
What Happened to Internet Appliances?
By Monica Rivituso
April 12, 2001
Digital Relic
Audrey, we hardly knew you.
A COUPLE OF years ago, Internet appliances were touted as the Next Big Thing in home computing. These simple machines, which allow users to surf the Web and send email, seemed to be perfect for PC-phobic neophytes — not to mention Web warriors who wanted, say, additional Internet access from the kitchen. Companies public and private trotted out their offerings with great fanfare, fully expecting sales to shoot through the roof.
That didn't happen.
Despite all the hype, only 150,000 Internet appliances were sold world-wide last year, according to Gartner Dataquest. That sorry performance prompted some of the biggest players to exit the market altogether. Netpliance (NPLI), whose i-Opener Internet appliance was among the first to hit the scene, bailed last year. (Today, with a share price of 42 cents, the company is at risk of being delisted from the Nasdaq.) And last month, 3Com (COMS) nixed its highly touted Audrey kitchen countertop device, which it had rolled out only months earlier. Now, Compaq's (CPQ) iPaq wears the crown as the most popular Internet-appliance maker. Gateway (GTW) and AOL Time Warner (AOL) have a co-branded product, while Larry Ellison's New Internet Computer Company also makes these gadgets — but sales have been disappointingly slow thus far.
"You can't ignore the fact that two of the top three suppliers [Netpliance and 3Com] are gone," says Brian O'Rourke, senior analyst at Cahners In-Stat Group. "It's very much a question of whether consumers want these things."
Clearly, they don't. The biggest selling point for Internet appliances — low price — isn't nearly as enticing now as a few years back, especially for products with such limited features. Most of these devices — which offer only basic Web surfing and email, and aren't able to run separate software — fall in the $500 range, roughly the price of a far-more-functional low-end Apple (AAPL) iMac. In fact, one could argue that Internet appliances don't even stack up with high-end cell phones, which are starting to offer Web browsing and email services on top of their voice platforms. "[Companies] are going to have to find a way to make a valuable and unique experience on the Internet appliances," says O'Rourke. "I don't know how they're going to do that."
There's another stumbling block: the frustratingly slow adoption of nationwide broadband Internet service. High-speed surfing would could make Web appliances much more attractive to Internet newbies. Thing is, only 10% of all homes in the U.S. — where most Internet appliances have been sold — have a broadband connection, estimates Gartner Dataquest analyst Todd Kort.
And for homes that already have a PC, adding an Internet appliance in, say, the kitchen, has typically meant signing up for a second Internet service provider. If there were a home network and the devices were compatible with it (which many haven't been), then installing another gadget to surf the Web might make more sense. It could take two or more years before the confluence of broadband, home networking and Internet appliances really takes off, Kort says.
The question is, can the remaining players wait that long? With Dell (DELL) having ignited a price war in the PC market, its competitors have had to retaliate and slash prices to hang onto their market share. To compensate for lower prices, companies often have to cut costs. And that means projects that aren't material to earnings or revenue, or don't offer a foothold into a fast-growing market, can get squeezed. Internet appliances suffer on all those counts.
Despite all the bad news, however, there are some encouraging signs for Internet appliances. Gartner's Kort, who is expecting 275,000 devices to be sold this year, was going to lower that estimate until he heard about two major deals. First, Intel (INTC), in conjunction with AOL, announced last month that it would supply 250,000 Web-access devices to Spain's biggest bank, Banco Santander Central Hispano. Also, chip maker National Semiconductor (NSM), which makes both chips designed for Internet appliances and an appliance of its own, webPAD, announced last month that it's teamed up with Samurai, an IT design house in Brazil, to provide affordable Internet-access devices to Brazilian homes and schools. No financial details were disclosed.
"I'm just hoping that companies like Compaq don't get discouraged in the near term and that people will start looking creatively for deals the way Intel has done in Spain, or National has done in Brazil," says Kort. "Those are the kind of things that are going to get us through the next two years until the market is really ready for these types of devices."
For now, though, just as with other technologies that rode a heady wave of optimism a year or so ago, the hype has fizzled in the Internet-appliance industry. And chances are, until companies find a better way to position these products, Internet appliances won't be roaring to life anytime soon. |
