PC Industry Undergoes Fundamental Transformation

By Lewis, Peter | THE JOURNAL RECORD, July 12, 1999 | Go to article overview

PC Industry Undergoes Fundamental Transformation


Lewis, Peter, THE JOURNAL RECORD


Swept up in the phenomenal rush of the global Internet that it helped create, the personal computer industry is undergoing a fundamental transformation.

The PC has become inextricably linked to the Internet, causing the two formerly distinct businesses to blend. Several PC makers have begun offering free Internet access as an inducement to sell more machines, while several Internet service providers have begun giving away computers, or subsidizing their purchase, to entice more customers to sign up for online services.

Still another group of companies has started giving computers to customers who agree to look at online advertising. The companies hope that they can attract advertisers who are trying to reach a population that is spending less time in front of the TV and more time in front of the PC.

The personal computer, which gained popular acceptance in the 1980s for its ability to perform a wide variety of business and scientific tasks, is increasingly being recognized in the late 1990s as primarily a communications device that enables anyone to send and receive e-mail, participate in discussion groups and browse for information on the Internet's World Wide Web. Marketing surveys confirm that Internet access is the main reason people buy a PC today.

And now, the PC is following the model of the cellular phone, which is often given away or sold at low cost to customers who sign up for service contracts.

Three of the largest Internet service providers, America Online's Compuserve unit, the Microsoft Network and Prodigy Internet, now offer $400 rebate programs that cover at least part of the cost of a new PC.

Meanwhile, several of the largest PC makers, including Compaq, Dell and Gateway, are driving the cost of their basic computers well below $1,000 and experimenting with free Internet access to get more customers.

Best Buy, CompUSA, Microcenter and Circuit City are among the large national retailers that are offering similar deals in conjunction with Internet service contracts, making the cost of a PC comparable to the cost of, say, a video cassette recorder. During test marketing at some stores, they have offered weekend specials: a PC for $400, with a $400 instant rebate. Circuit City offered a bundle of a monitor and printer for $99 extra.

There is no such thing as a free lunch, of course, and caveats abound in these new schemes. There are no complete PC systems available for $400, and the PCs that come closest are typically bare- bones machines with minimal features, dubious warranties and limited free technical support. The offers typically do not apply to Apple Macintosh computers or PC companion devices like the Palm Pilot. The Internet service contracts require payments of $700 or more over three years, and if the customer gets frustrated by the quality of the PC or the Internet service during that time, three years is a very long time to stew.

On the other hand, there is no doubt that these programs make owning a PC and getting connected to the Internet much less expensive than ever before.

For example, a customer can buy a $399 Emachines PC with Compuserve software already installed, sign up for a three-year Compuserve account at $21.95 a month and get a $400 rebate check from America Online. The Emachines computer does not come with a monitor, which adds $100 or so. And while Compuserve is owned by America Online, it lacks the strong lineup of family and child-friendly features that have made AOL the world's most popular online service. …

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