Free-Computer Offers Contain Some Catches
There isn’t much that’s free in the latest round of “Free PC” offers, and industry analysts see the $400 rebates that have sprung up this week as adding just a small amount to the 50% or so of U.S. homes with computers.
While the terms vary, the offers by America Online’s CompuServe unit, the Microsoft Network and Prodigy generally give computer buyers $400 off a new computer when they commit themselves to three years of Internet access at current rates of about $20 a month.
For buyers of computers made by Irvine-based EMachines, which makes machines costing as little as $399 without monitors, the offers might indeed appear to amount to a free computer. (Buyers of more expensive computers get a $400 rebate on their purchase price.) Yet many consumers are sure to realize that Internet access is likely to get faster and cheaper--perhaps as little as $5 monthly sometime in the next few years.
“The terms of the service contracts are pretty onerous,” said Bank of America Securities analyst Kurtis King. “There’s nothing free about these offers.”
King noted that the three-year commitments required of the buyers might prevent them from taking advantage of better Internet deals down the line or upgrading their hardware as improved equipment becomes available later--as always happens in the fast-changing computer market.
Privately, the Internet providers and retailers, including Best Buy and Circuit City, acknowledge that they are hoping for little more than an incremental improvement in sales at the bottom end of the market.
Best Buy spokeswoman Laurie Bauer said that on Thursday, the first day of the chain’s Prodigy rebates, distribution of the start-up software quadrupled--though that’s from less than 1,000 disks before.
The heavily advertised rebates might, however, help increase customer traffic at the stores and pump up sales of peripheral products, she said.
The rebates involve linkups between leading electronics retailers and Internet providers. Circuit City, for example, is offering rebates from CompuServe, and Staples is partnering with the Microsoft Network, or MSN.
The trend reflects something of a symbiosis between computer makers and Internet providers: The manufacturers theoretically get to place their products in more homes, and the service providers get to sign up more members by offering them what appears to be a cut rate.
“The hardware vendors and the service providers are at the barn dance, and they will all rush to the center of the floor until everyone is partnered up,” said International Data Corp. analyst Roger Kay.
The new rebates could cripple the various giveaway programs of such companies as Gobi, Free-PC and InterSquid. Those companies give away computers to people willing to watch continuous ads, to buy a certain number of products online or to pay for three years of Internet access.
“At the end of the day, this not a game for small companies,” King said.
He said the Internet access providers appeared to be the ones driving the new initiatives, although they share some of the money with computer makers and retailers.
“The real lure for the consumers has to be the minuscule upfront cost of getting on board, not the longer-term economics,” King said. “The greatest impact for the PC vendor is the increase in penetration. This is Step 1 in a trial-and-error process.”
