The Free PC: Fad Or Our Future? - Industry Trend or Event

Computer Technology Review, Sept, 1999 by Joshua Piven

First came the low-cost PC ($1,499). Then the sub-$1,000 PC arrived. Soon after that the $499 PC appeared. And now, inevitably and right on schedule, the free (but not no-cost) PC era is upon us. What's next, the for-profit PC, where the OEM pays the user to take the PC off its hands?

Don't scoff. It may yet happen. The PC industry is changing so rapidly that even stalwarts like Dell--a company that has always focused on quality, not cost--are being forced to ship Internet-service-subsidized machines. Is this a natural progression in the industry, or just a passing phase?

Before the arrival of the Web, the PC was king, and prices were at a premium. But my gut feeling today is that as we move into the era of broadband Internet access, the "FreePC" will become even more appealing. Why? Two reasons: Because users are willing to pay more than $20 per month for high-speed access, and because advertisers on the Web are paying for eyeballs, not business. Witness the comparatively exorbitant fees companies like AOL are charging advertisers: this isn't because AOL users are e-commerce trailblazers, but because 14 million sets of captive eyeballs are a huge potential (and this is the key word) source of revenue.

Imagine the following scenario, which I predict we will see very, very shortly. AOL partners with a PC OEM (perhaps Sun) and several DSL providers. Their deal: consumers get a free, state-of-the-art PC with an Ethernet card and 1Mbit/sec Web access. In return, the consumer signs a two or three year, $40 or $50 per month service commitment. The OEM and DSL provider split the monthly fee, plus get a payment from AOL (perhaps in the form of advertising instead of cash). AOL, in turn, gets tens of millions of new users, and ups their advertising rates and e-commerce transaction fees accordingly.

Think it won't happen? It has to. Because AOL (and probably MSN as well) has to find an effective, high-speed way to battle the cable industry for viewer-users, and thus far it hasn't. Cable companies make money from recurring monthly charges, from advertising, and from pay-per-view, not from selling the cable box. When AOL figures this out, you can bet that the "AOL FreeC" will be on store shelves in an Internet minute.