computers

Brandweek, April 24, 2000 by Todd Wasserman

HOT BUTTONS

Internet service provider deals have revolutionized the industry as PC companies recast themselves

OVERALL

Spending up

DARK HORSE

Can IBM convince customers that it's the new Dell?

Few companies are counting on PCs as their primary source of income these days. When you buy a PC now, there's usually an offer for a three-year contract with an Internet service provider, which cuts about $400 off the purchase price. This cell phone-like model had been talked about for years, but finally hit in mid-1999.

Of course, there are many variations on the theme. Netpliance, an Austin, Texas, startup, offers a stripped-down PC for $99 with a commitment to sign up for at least 90 days to its $21.99 monthly service. Other companies, like AltaVista, offer free Internet service if the user agrees to sit through a bombardment of advertising. Virgin Interactive offers a free Internet appliance to select users who fit a demographic profile and are willing to pay $50 a year for Internet service. America Online, meanwhile, is planning its own Internet appliance for later this year.

The few new hybrid PC/ISP companies are taking a page from dot-coms and launching big branding campaigns (PeoplePC's $40 million push last fall, Netpliance's Super Bowl spots), but so far seem to be getting little traction. Emachines, now the No. 3 PC maker at retail, doesn't do any advertising and made its name by offering low-cost, generally high-quality merchandise and keeping retailers happy by hitting inventory targets.

So, the PC business is a little more complicated than it used to be. Feeds and speeds no longer drive the market. With most consumers having discovered that any processor running over about 300 MHz is a waste of money, the breathless anticipation over Intel or Advanced Micro Devices' next chip has become largely a relic of the past. Intel upped its ad budget 51.5 percent to $136.5 million in 1999, according to Competitive Media Reporting, but that did little, in the end, to ward off the cash-strapped AMD, which made remarkable gains despite spending only $6.1 million on ads in the same period. AMD for the first time had the fastest chip on the market, and Intel is feeling the pain as it suffers product shortages and more PC makers defect to AMD. Nevertheless, Bob Kennedy, AMD's director of marketing, said the company may not do any TV this year.

PC makers continue to try to redefine themselves as corporate Internet solutions providers. Taking a cue from IBM's successful recasting as an "e-business" enabler, Compaq, Hewlett-Packard and Dell have all turned out TV campaigns budgeted in the tens of millions of dollars over the last year billing themselves as e-biz-savvy firms. Wall Street has generally supported the strategy.

Once-stodgy HP put Lucent's Carly Fiorina at the helm and is spending $200 million this year for its three-part "Invent" campaign, via Goodby, Silverstein & Partners, San Francisco. Investors love the effort so far, but analysts point out that HP is not really in the same class as consultants like Andersen Consulting or IBM.

Compaq's clumsy 24x7xCompaq campaign, meanwhile, did little to put it in league with Andersen or IBM, so the company put its $300 million account up for review in February. Gateway has dipped its toes in the e-biz market with its $50 million Gateway@Work campaign (out of $130.9 million spent last year) last December, but its identity as a "consumer brand" has been a stigma in the corporate space before. Dell, which moved into TV advertising in a big way in 1999, in March launched an e-biz effort replete with a spotlighted e in "Dell." Meanwhile, as everyone tries to copy IBM, Big Blue launched another $20 million effort in February to recast itself as a direct seller of PCs. Whether that campaign or the next one will convince customers that IBM is the next Dell is anyone's guess.

One exception to this--as to so many other trends--is Apple, which has shown no interest in becoming an e-business solutions provider. Apple's continual buildup to its next iteration (first iMac, then iBook, now the rumored iPad handheld) is a little old-fashioned, but it seems to be working. And there are no indications that Apple, which spent $89.3 million on measured media in 1999, plans to tinker with a three-year-old, advertising-heavy approach that has brought the company from the brink of extinction to its most flush period since the '80s.