When Free-PC Inc., Pasadena, Calif., amassed about 1.25 million applications from interested consumers in the wake of its 10,000 "free" Compaq Presario Internet PC announcement, a craze was born and from it dozens of partnerships are being formed to perpetuate this phenomenon. Now the question is what impact is the free PC going to have on the retail market?
PC Data, Reston, Va., said the free-PC offers are resulting in a sharp rise in in PC sales. The free-PC offers from ISPs and others late in June led to a 35 percent unit increase compared with the same month last year.
Vendors such as Microsoft Corp., Redmond, Wash., and Hand Technologies, Austin, Texas, unveiled partnerships to provide free PCs to the market. Microsoft partnered with Lan Plus Inc. earlier this month offering a free 400MHz Advanced Micro Devices Inc.-based white- box PC when consumers prepay for three years of MSN access at $17.99 per month.
Hand Technologies also rolled out its EZ Access, which will provide customers with a $400 rebate and a $500 shopping voucher when they purchase three years of ISP service at $21.95. Representatives from Hand Technologies said the company hopes to motivate customers to get online. Hand Technologies offers customers a choice of either IBM, Compaq or an eMachines PC.
"The cost of customer acquisition is how we can offer the rebate and voucher," said Hand Technologies Chairman Nathan Morton, the former chief executive of CompUSA Inc. "We will compete with retail rather than the Internet."
Houston-based Compaq Computer Corp. offers ISP service from NetZero Inc. on all its PCs. Patrick Griffin, manager of desktop and notebook marketing, said NetZero provides free Internet access on Compaq PCs with a taskbar with personalized advertising banner, for which consumers provide the particular information.
"Consumers have to consider the question, is free free?" Griffin said.
Compaq advertises its bundle, which includes a PC, 15-inch monitor and inkjet printer for $697 after a $150 rebate. Griffin compares this price to the "free PC," which he said ends up costing $1,137 with monthly ISP payments. He added the decision to buy PCs direct or "free" is a consumer decision as to whether a monthly or bulk payment is financially effective.
"In the short term the free PC is good for retail and ISPs who are using this as a market-share tool," Griffin said. "But we have potentially set the bar at free. To go from 'free' to $500 is a hard pill for everybody to digest."
The Compaq executive added that the free-PC phenomenon is one of the many ways for consumers to purchase PCs, but it is not an end-all solution. "The free PC may or may not live and it can live along with other solutions. It is up to the ISP whether it lasts longer," Griffin said.
Most recently, FreeMac.com said it will give away 1 million Apple Computer Inc. iMac computers, which retail at about $1,160. Apple was unavailable for comment at this time, but FreeMac.com has not said whether the PCs will be shipped directly from Apple or a distributor. The free iMac is accompanied with the requirement of three years Internet service through Earthlink Network Inc. where customers must qualify for a First USA Visa credit card from which payments of $19.95 a month will be taken.
Analysts seem to have mixed feelings about the future of this trend but agree that the retail channel will join the bandwagon.
"Retail will prosper in this model [free PC] but they will target different segments of the market," said Lindy Lesperance, analyst with Technology Business Research, Hampton, N.H. "There will be more of an effort of retailers and vendors to stop a portion of the business to online, but there is room for both."
Lesperance added that the novelty of the free-PC phenomenon has worn off. Round Rock, Texas-based Dell Computer Corp. is the first example of a new sub-PC group, she said, which she attributes to the company's ability to sit back and watch the trends before jumping into the market. Dell last week debuted "Dellnet," which will offer a Dell Dimension for $959 or $29 a month with a year of enhanced Internet access.
"Dell figured out their own solution and hit the sweet spot of the market," Lesperance said.
Andy Bose, president of Access Media International-USA, said statistics regarding free PCs are unavailable due to the newness of the trend. He said the model could possibly attract first-time buyers and increase PC penetration from the present 45 percent to between 75 percent and 80 percent.
"It is a difficult business model, but it will give the industry a way to find out how to leverage the customer base," Bose said. "It is inevitable that retailers like CompUSA who have their own products will be forced to become involved."
Bose said retailers may use the free-PC business model to their advantage. He predicts the structure will impact a growth rate in shipments and offer a variety of financial possibilities in the future.
"This is a much needed, very important turning point for the PC," Bose said. "No concept is too unique for too short of a time."
Both Lesperance and Bose agreed that the FreeMac.com iMac offer is a step in the right direction for the pricier PCs.
"This continues to validate the trend in the market with the iMac being the first free PC with a pricier model," Lesperance said. "It will be a boost to Apple's market share."
"The iMac has already opened first-time users," Bose said. "It will lead to multiple users with their own PCs accessing the Internet or upgrading their old PCs."
Griffin added that in the end consumers win with the free PC. "I do not see this as a tricky marketing view, but as another way of getting PCs into the hands of consumers," Griffin said.