Cheap PCs/Free PCs-Yup looks like this model is going places-Not.
ed:
Check this out,sure looks like a winning strategy don't it?
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If Cheap PCs Hurt Service, Firms Will Pay
(Courtesy:Investors Business Daily)
Date: 4/19/99
Author: Nick Turner
In the frenzy to sell ultracheap personal computers, makers may be neglecting a key service: technical support.
That's the take of Scott Harmon, chief executive of Motive Communications Inc. , which sells software to deliver support over the Web.
Consumers, especially novice buyers snatching up sub-$500 PCs, will demand some service, Harmon says. Unless PC makers are able to deliver such services, they'll fail, he says.
He recently explained the issue to Investor's Business Daily.
IBD:
Companies selling $399 and $299 PCs have razor-thin profit margins. Can they afford service and support?
Harmon:
When you go below $500, you can't afford to do support at all. PC companies figure that each box will cost them between $70 and $100 for support. When you drop below $500, that's basically your whole profit margin.
Right now, the service component for the overall PC market is 12% to 13%. So you can't cut that much cost out of the thing and then still afford the kind of service that a Dell Computer or a Compaq Computer or a Hewlett-Packard has. It just doesn't work.
IBD:
But many sub-$500 PC buyers are computer novices that need the most support.
Harmon:
The real issue becomes whether the PC industry is going to become a product-centric industry or a service- centric industry. For technology companies to continue to sustain the growth rates of the last few years, they're faced with the challenge of transitioning to service business models. There are companies that realize this: Intuit, Dell and others.
The computer itself has become a commodity or an appliance. The competitive differentiator is not going to be the speed of the processor or the size of the disk or the version of Windows. The questions are going to be: How do I get services and support, and what if (the computer) doesn't work? Everyone's asking: Who's going to be the Nordstrom of the Net? They're famous for service. People shop there not because of the merchandise, but because they're such a comprehensive service provider.
IBD:
When consumers are shopping for PCs, are they already thinking about service?
Harmon:
I think that the consumers who have historically bought PCs over the last five or six years are technology enthusiasts. They're technology literate. They'll buy something from the Internet. They know how to install Windows or software drivers.
But the consumer of the next three or four years won't tolerate the model that these early adopters have tolerated. They will insist on service when they buy the thing. My mother would never think of buying something if she wasn't absolutely comfortable that it would come with comprehensive service, because she's scared of the computer.
IBD:
What role will the Internet have in providing that support?
Harmon:
I think it's integral. Dell (the leader in PC sales over the Net) is showing that consumers really do like to deal with their provider over the Internet. What we're going to find is the Internet is really a service channel as well as a buying channel. As people begin to get more comfortable with the Internet for buying PCs, it's the perfect medium for providing customer service as well.
IBD:
Still, most people rely on the phone for tech support. How do you make Internet help so simple that consumers don't feel the need to pick up the phone?
Harmon:
People rely on the phone not because it's so wonderful, but because it's their only option. The average hold time for call centers in the PC business is over 30 minutes. I don't think anybody would argue that telephone-based support is this wonderfully comprehensive medium that's going to be hard to dislodge. You only have to be decent to be better than the phone.
Most people hate the telephone support model. When you do service, it has a negative rating right up there with Ken Starr. There are horror stories about people being on hold for hours and some moron asking them a bunch of stupid questions. There are Dilbert cartoons about it. It's part of the popular culture.
The Internet has the potential to be dramatically better. It's immediate. You click a button, and you can be connected to service resources immediately. Companies can deliver really cool self-service features that can understand the product you're using. They can reconfigure and repair it in real time, and it keeps you from having to talk about confusing things over the phone.
IBD:
But is a novice user going to be that savvy about using the Internet?
Harmon:
There is certainly an adoption curve that depends on the Internet becoming a mainstream medium. And that doesn't happen overnight. The Internet is not that comfortable for the majority of people, but in three or four years it will be. It's being driven by America Online and electronic mail.
Internet- based customer care is still in its infancy. I think it will see explosive growth, but it's not going to supplant the telephone in nine months.
IBD:
Looking at the various free and nearly free PCs out there, what do you see succeeding?
Harmon:
I think the free-PC initiatives I've seen are going to fail. They're going to fail because they take this product-centric view. I don't think the majority of people are going to accept no support at all. What we'll see is some pretty famous flameouts.
I think the successful business model will take a low-cost PC, with Internet- based services wrapped around it, and sell it as an appliance to the consumer.
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