AOL to Market Low-Cost PC to Latinos

By Chris Gaither

Aug. 12, 2004 12 AM PT

Times Staff Writer

“Bienvenidos, tienes e-mail.”

America Online became the biggest Internet service provider in part by stuffing millions of free sign-up discs into mailboxes, newspapers and magazines. Now it’s trying something bigger to stay on top: selling cheap computers to Latinos.

The Time Warner Inc. division is expected to announce today that it’s reviving the failed dot-com-era tactic of selling a heavily subsidized personal computer to attract new customers.

The AOL Optimized PC, which includes a printer and a 17-inch monitor, costs $300 with a one-year subscription to AOL’s $23.90-a-month online service -- about $170 less than a comparably equipped Dell.

AOL executives figure that they can avoid the problems that plagued PeoplePC Inc. and other failed companies that tried to make money bundling Internet access with computers. That’s because AOL, which has lost 3.3 million U.S. subscribers since September 2002, plans to focus its offer narrowly on Spanish speakers who don’t already own a PC.

Some said the Dulles, Va.-based ISP had a good shot at making the promotion work.

“I don’t think this is just like the others,” said Ted Schadler, a principal analyst with Forrester Research in Cambridge, Mass. “The targeting is a very important part of doing something different.”

Only 36% of Latino households have Internet access, compared with 66% for the general U.S. population, according to Synovate, the market-research arm of Aegis Group.

The market is ripe: Although 12.5 million Latino households aren’t online, Latinos “are not resistant adopters of new technology, by any means,” said Deborah Gonderil, a senior vice president at Synovate and an author of the 2004 U.S. Hispanic Market Report, citing their early embracing of cellphones.

Instead, she said, the lag in Internet adoption stems from the fact that 65% of Latinos in the United States are “Spanish-dominant,” meaning they speak only Spanish or prefer it over English. And for a long time, she said, there wasn’t much interesting Web content in Spanish, and many Latinos didn’t have many Internet-connected friends to e-mail or chat with in the United States or Latin America.

When AOL asked Latino consumers why they didn’t have Internet access at home, they cited the lack of good Spanish-language content, the high cost of buying a PC and the difficulty of setting it up, said David Wellisch, general manager of AOL Latino.

That service, started in October, was designed to tackle the first problem. Then, after a test promotion last year, AOL decided to offer the cheap PCs.

AOL had its suppliers configure the computer so desktop icons and programs can switch easily from English to Spanish. The company is including a bilingual poster and video to help set up the computer. And it is offering prominent desktop links to its AOL Latino service, which it said gets more than 1.2 million visitors a month.

AOL is also advertising the computers on Telemundo and other Spanish-language media.

Selling computers was an unlikely strategy, given the limited success of earlier efforts.

Though it was praised for trying to eliminate the “digital divide” in Internet access between ethnic groups, PeoplePC struggled to stay afloat. It mostly lost money until EarthLink Inc., the Atlanta-based ISP, acquired it in 2002 for $14 million in cash and $50 million in assumed liabilities.

EarthLink inherited PeoplePC’s 60,000 monthly paying subscribers and about 500,000 prepaid subscribers who had bought the computers. EarthLink said it could succeed where the smaller ISP had failed because it could negotiate better telecommunications deals.

That didn’t happen. EarthLink announced in January that it would stop selling computers. It turned PeoplePC into its discount Internet service to compete against United Online Inc.’s NetZero and Juno, as well as AOL’s less-expensive Netscape service.

Eric Greenman, executive director of partner marketing for AOL, said company executives were betting they could subsidize the PCs without losing money. Added Wellisch, “We are in the business of profitably acquiring customers, and that’s what we’re doing through these means.”

When AOL began working with Systemax Inc., a Port Washington, N.Y.-based electronics manufacturer, on building the AOL Optimized PC, it tried to cut costs wherever possible. The machine is powered by a 2-gigahertz Celeron processor from Intel Corp. and runs Microsoft Corp.’s Windows XP Home Edition operating system.

Instead of using a suite of Microsoft applications, AOL had Sun Microsystems Inc. create a customized applications suite based on Sun’s open-source StarOffice. A Sun spokesman said the AOL computer was the first by a big-name tech company to be sold in stores with StarOffice.

But the AOL computer faces several challenges, especially picking up more distributors, analysts said.

Office Depot Inc., the only signed distributor now, won’t reach consumers the way Best Buy Co. or Circuit City Stores Inc. would, said David Card, a senior analyst with Jupiter Research.

If it can line up more distributors, he said, AOL could win subscribers not by stealing from competitors but by giving them a boost onto the Net.

“It’s a logical thing,” Card said, “for the biggest player on the block to try to grow the whole market and gain customers that way.”

(BEGIN TEXT OF INFOBOX)

Biggest Internet gates

Internet service providers ranked by U.S. market share

AOL: 24.63%

NetZero/Juno: 7.67%

Comcast: 6.42%

EarthLink: 5.71%

SBC/Yahoo: 5.32%

MSN: 5.11%

Road Runner: 3.60%