to all: FOOD FOR THOUGHT: WILL PCS BECOME LIKE CELL PHONES? WHERE DOES THIS LEAVE DELL?
The Wall Street Journal -- August 12, 1998
PC Makers Hunt for Gold in Internet Hookups
By Evan Ramstad
Staff Reporter of The Wall Street Journal
Faced with sinking prices and slowing demand, the makers of personal
computers are preparing to do something radical: make money from
Internet services.
Compaq Computer Corp., the biggest maker of consumer PCs, has reached
separate agreements with a range of on-line service providers, including America Online Inc. and GTE Corp., and electronic retailers including Amazon.com Inc. Hewlett-Packard Co. has cut its own deal with GTE. In each case, the Internet company has agreed to share with the hardware maker a slice of the revenue on-line customers generate using Compaq or Hewlett machines.
In exchange, the PC makers have redesigned their keyboards to add
"quick-access" Internet features -- and, naturally, give prominent
placement to the Web sites and services of their partners. Compaq's 1998
consumer desktop PCs, for example, have four new Internet buttons -- for
connecting, searching, electronic mail and shopping -- with automatic
links to America Online, GTE.net, Amazon.com and Walt Disney Co.'s
on-line store. Every time a customer orders, say, a book from Amazon.com
using his Compaq Presario, Compaq gets a portion of the sale. The
companies won't disclose how much.
The companies' quick-access features could make the Internet easier to
use. They also would shift some of the control over how consumers use
the Internet into the hands of PC makers and their on-line partners. The PC industry is hoping the new features also could reinvigorate the
economics of making and selling computers.
"These are the first steps to a dramatic new world for the PC and
companies like us," contends Rod Schrock, chief of Compaq's consumer
division. Three other hardware concerns -- Packard Bell NEC Inc.,
International Business Machines Corp. and Gateway Inc. -- have forged
similar on-line pacts, while also trying to tap Internet revenue by
creating their own services.
If the on-line service business becomes as lucrative as expected, then
the entire economic model of PCs could someday move in the direction of pagers and cellular phones: Customers would pay a minimal amount for the hardware but would agree to pay for the service over a fixed period.
Selling PCs that way isn't all that far-fetched. In France, people have accessed the Minitel on-line service via "free" computer terminals for 15 years. The cost of the hardware is hidden in the monthly fee.
"You could envision something like the cellular-phone business model
here," says Phil Hester, chief technology officer for IBM's
personal-systems division. "With prices coming down and margins coming
down, that day is probably not too far ahead of us."
Then there are all the problems and uncertainties of the Internet
itself. Even though they are called "quick-access" buttons, the new
Internet features don't shave any time off the long wait endured while
most home PCs get on the Net. And over the long term, the PC may still
be supplanted by the television set as the way most households go
on-line.
Still, PC makers are salivating at the thought that the Internet could
restore their battered profit margins. If they can cut the right deals,PC executives think, Internet and related services could provide 15% to 25% of their consumer revenue in just a few years.
Today, hardware provides about 95% of that revenue. Compaq, with 1997
consumer PC sales of $3.8 billion, is aiming to have consumer PCs
generate $1 billion in Internet-related revenue by 2001. Mr. Schrock
says he believes one million Compaq buyers will have tried either GTE's or AOL's services by next July.
On-line executives say they hope the new agreements with hardware makers can help keep customers signed up to Internet services. "There's skin in the game for both parties," says Alex Coleman, a vice president at GTE
Internetworking Services. Barry Schuler, president of America Online's
interactive-services unit, says PC prices are nearing the point where a monthly Internet service could conceivably come with a "free" PC. The critical point, he says, may be when the price of a PC and monitor falls below $500 -- down from a low of about $800 today.
"If we could put the service out for something like $35 a month and you got the hardware with it, we think that's a great price," Mr. Schuler says. AOL, the nation's largest on-line service, currently charges $21.95 a month for unlimited access.
Compaq's Internet plans emerged last year. Executives were reviewing a
deal with America Online that was about to expire. In it, AOL, like
other on-line service companies, was paying Compaq a fee for installing
AOL access software on consumer PCs.
Compaq made signing up for an on-line service one of the steps in the
start-up program that runs the first time users turn on their computers.
Previously, several on-line services appeared as logos on the PC desktop
every time. Now, once users make their initial on-line selections, they
are connected via preset links directly to the services and home pages
of Compaq's partners -- with just one push of a Net button. |
