EMachines to End Free Internet Access

TIMES STAFF WRITERS

Low-cost personal computer maker EMachines told customers Wednesday that it will stop providing free Internet access, ending an experiment that had become unfeasible.

The Irvine-based company, which acquired Free-PC of Pasadena last year, said earlier that it would stop the practice of giving computers away in exchange for advertising. It is halting its free Internet access Feb. 14.

EMachines' latest decision reflects the riskiness of a business model based on providing free products or services in exchange for customers agreeing to be bombarded with advertising from vendors, industry analysts said.

It also means a complete rejection of the original premise of EMachines and Free-PC--one that was mimicked by dozens of other businesses that offer an assortment of technology freebies to consumers.

"Now that we've seen some of the extremes, we're going to see companies try something in the middle," said Kevin Hause, an analyst with International Data Corp.

The idea now, he said, is for companies to sell the hardware to recoup their costs and use ads to make a profit.

EMachines sent e-mail Wednesday to 25,000 customers it gained from the Free-PC purchase, informing them of the decision to end the service.

"The service really became a drain on our staffing resources that we felt we couldn't afford," said Steve Chadima, EMachines' vice president of marketing. "We want to be able to focus our staff on creating products for paying EMachines' customers."

EMachines, which started selling low-cost computers in November 1998, is seeking to raise about $200 million by selling shares to the public for the first time.

In its most recent regulatory filing, the company said it will pay $146 million in stock over two years for Free-PC's intangible assets, mainly goodwill. The full value of the deal remains unknown because EMachines has not yet valued the shares it expects to sell in its offering.

In telling customers it is discontinuing free Internet access service, company officials said in the e-mail, "We encourage you to look into alternatives for connecting to the Internet" between now and Feb. 14.

The e-mail included links to three other providers that offer free service: AltaVista, BlueLight and WorldSpy.

Many offers of free Internet service are available today. In Wednesday's e-mail, EMachines also said customers now own their machines "free and clear." "We will be destroying your credit card information, and we will be sending you written confirmation of this, as well as the title transfer," the e-mail said.

Last February, Free-PC said that it would give away 10,000 Compaq computers and offer free access to the Net, and that it had bold plans to distribute as many as 1 million PCs. The company offered the machines and access in exchange for information about customers' ages, incomes, hobbies and other personal details that advertisers covet.

The customers also had to agree to let the company monitor how they used the Internet, including what they bought and where they went on the World Wide Web.

Hundreds of thousands of people flooded the company's Web site, eager to sign up. But Free-PC ultimately was not able to meet the demand for its giveaways.

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