IQ
Interesting article from Raging Bull site.
WILL PC MAKERS SOON CHALLENGE THE WEB'S LEADING PORTALS AND E-TAILERS?
Most savvy Internet users think of sites like Amazon.com and CDnow as the
Web's consumer e-commerce leaders. Say the word "portal," and they
immediately think of Yahoo!, Excite, Lycos and Infoseek. Mention ISPs, and
they will rattle off a list of national providers that includes
heavyweights like AOL, MindSpring and Earthlink.
But are these Web users' e-commerce, portal and ISP preferences about to
change? That's what the nation's three largest PC makers - Dell, Gateway
and Compaq - are hoping. These three companies have made significant
strides toward becoming players on the Web over the past few weeks.
With PC prices continuing to fall, PC makers are coming to the realization
that they are selling a commodity product that offers them increasingly
smaller margins on every sale.
What do PC manufacturers do to strengthen their bottom lines? First, they
re-evaluate their core strengths. Yes, the average PC price continues to
decline, but the crown jewel of these three companies is each one's unique
opportunity to build a direct and potentially rewarding relationship with
the consumer. Compaq, Dell, and Gateway in particular have the potential to
be starting points for a variety of post-sale consumer add-ons.
Once consumers have opened their wallets for a new PC, what is to keep them
from letting the same company provide them with a bevy of related services
- including peripheral devices (like printers), software, Internet
connection
and a personalized start page?
Companies like Compaq and Gateway are already flirting with the idea of PCs
as a necessary loss - an offering designed to build a lasting relationship
between PC maker and consumer. This notion casts the initial PC sale as the
glue that binds consumer to manufacturer for additional product and service
sales - where Compaq's and Gateway's real profits will be made in the
future.
Gateway, Dell and Compaq are now attempting to make this scenario a
reality.
GATEWAY:
In early February, Gateway and Yahoo! announced the launch of a co-branded
service. The offering includes a personalized My Yahoo! start page as the
default for Gateway's gateway.net ISP users. In 1997, Gateway launched
their own branded national ISP called gateway.net and made it available to
all Gateway PC customers. In January of this year, Gateway switched over to
using MCI Worldcom's UUNet subsidiary to provide Internet communication
services for their gateway.net ISP.
Then, last week, Gateway announced that they will begin offering free
Internet service for a year via gateway.net with the purchase of many of
their PCs. The company also announced they had taken a 19.9% minority stake
in NECX, an e-commerce site. Together, the companies plan to launch
SpotShop.com to offer Gateway products as well as thousands of peripherals
and software from other manufacturers.
Makes sense... Gateway seeks to attract customers with competitive PC
prices and a free ISP that delivers users straight to Gateway's online
superstore, SpotShop.com. Finally, the company wants to hook users to its
free,
personalized My Yahoo start page. It's a nifty package - and a mere hint at
the comprehensive packages PC makers will cobble together in the coming
months.
DELL COMPUTER:
Today, Dell books close to $14 million in computer sales over its web site
each day and the company had 1.6 million unique visitors to its site in
December, 1998. GTE, AOL and AT&T provide the standard Internet
connectivity package for Dell users and the computer-maker has yet to hint
at plans to roll out its own branded-ISP. Portal site Excite does, however,
provide search and personalization capabilities for many of Dell's PCs.
Dell's most notable e-commerce/portal deal to date is its online store -
called Gigabuys.com - which is set to sell software and peripherals (much
like Gateway's SpotShop.com). Dell has also recently registered the domain
name
'Dellauction.com', but the company is keeping mum about any future plans to
launch an auction site. Dell officials have, however, suggested that
Gigabuys.com may eventually sell PCs from a variety of computer
manufacturers.
Clearly, Michael Dell & Co. are taking a somewhat conservative approach to
the 'branded ISP, customized portal, and online superstore' model that
Gateway is pursuing.
COMPAQ:
This company has made perhaps the biggest push to become a significant
online force, having already announced plans to take its Alta Vista portal
subsidiary public later this year. Compaq's Presario Internet PCs already
feature a
special Internet access keyboard with buttons that push users directly to
various web sites, including Alta Vista, and the company plunked down
approximately $200 million in cash this past January to purchase
Shopping.com, a troubled e-tailer and a product of Bill Gross' idealab!
Internet incubator.
Then, in mid February of this year, Compaq announced it would acquire local
directory guide company Zip2. Ironically, Zip2 had come close to merging
with CitySearch, another idealab! spawned company, in the past. Through the
acquisitions of Shopping.com and Zip2, Compaq is attempting to build a
first tier portal with an emphasis on the local city level. Finally, Compaq
announced a pact this past week with software e-tailer Beyond.com in which
Beyond.com will provide its library of downloadable software via electronic
software delivery to Compaq.com customers. Clearly, Compaq has put two of
the three key components in place - an e-commerce site (Shopping.com) and a
customized portal (AltaVista). Compaq has yet to announce plans for a
branded ISP.
Compaq does appear to be toying with the idea of a free ISP offering of
some fashion, however. After all, Compaq is supplying Free-PC.com (another
Bill Gross idealab! Company) with 10,000 PCs. And free-PC.com has announced
plans to give away 10,000 PCs with a free Internet connection in exchange
for users' personal data and acceptance of small, banner-like
advertisements that will reside on computer screens even when users aren't
online.
NetZero, another idealab! Company, is providing the free national ISP for
Free-PC.com! users in exchange for their acceptance of targeted
advertising. NetZero already boasts over 400,000 subscribers. Could the
company eventually
announce an alliance with Compaq? It is hard to say, especially when such
an alliance might complicate Compaq's existing distribution/bundling
relationships with other ISPs on its Presarios. One thing is clear, Compaq
is happy to partner with idealab! companies.
WILL OTHER PC MAKERS FOLLOW?
Recent Internet initiatives by Gateway, Compaq and Dell are being watched
closely by other PC manufacturers. Will these three PC manufacturers'
strategic moves place them in the same tier as Yahoo! and Excite?
That is unlikely. But in less than two years' time, there is a strong
possibility that these PC makers will be on even footing with many of the
Web's largest e-tailers.
Watch what other PC makers (H-P, Sony, Micron and NEC/Packard Bell in
particular) do in the coming months regarding the Net. Yes, portals like
Excite and Yahoo! will continue to prosper regardless of what the PC makers
may do online, but these are ominous developments for e-tailers like
Cyberian Outpost, Beyond.com and Egghead.
Batten down the hatches, boys. Your worst offline nightmares just hit the
Net, and they will sell a lot more than PCs.
Regards
Neil
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