Why "Free" PCs Might Be

Electronic News, Feb 15, 1999 by Arik Hesseldahl

New York, NY

It had to happen sometime. Last week a company called Free-PC announced that it would give away free Compaq desktop PCs, complete with Internet service, to 10,000 lucky people. The catch? Users of the machines agree to subject themselves to a daily, relentless barrage of advertising right on the desktop.

The company has $10 million in funding from Barry Diller's USA Networks, which itself merged with Lycos last week.

The ads will be stored in a database on the 4Gb hard drive, and will be directed on a rotating basis according to detailed demographic information provided to the company by the user. Something tells me that no matter what kind of demographic skew you fit, you won't be able to escape ads for Diller's Home Shopping Network.

Apparently, more then 300,000 applied for the program.

This is a new twist on an old idea. Brand a product as "free" then pump it full of advertising to pay the bills. In some European countries, you can get "free" long distance calling if you agree to let your conversations be interrupted every few minutes for an advertisement. A national Internet Service Provider called NetZero offers a full range of Internet services in exchange for a little space on your desktop when you're logged online. Another company, BiggerNet, tried the same idea and went bankrupt.

But as the PC industry has become one of steadily declining retail prices for consumers and declining profit margins for OEMs, undercutting a $799 PC with one that's "free" might make a lot of sense at first glance.

But is it really "free?" Perhaps a more accurate term might be "advertising-subsidized." I have to wonder how long users will be able to tolerate a constant stream of advertising as they use their computer.

But as low as the price of a sub-$1,000 or sub-$500 PC may seem, it is still fairly high for one segment of the population which has been bypassed by the information revolution: low-income households.

When I first started using the Internet in the early 1990s, I thought, as did many others, that the information revolution would be all- inclusive. All you needed to join in was a computer and a network connection.

But what is only a moderate barrier to entry for some people -- the purchase of a PC -- is insurmountable to others. Which is why I like the idea of the "advertising-subsidized PC." Free-PC -- if they haven't done so already -- should make an effort to reach out to lower-income households. The company would only stand to benefit from the public relations benefits of helping to narrow the information gap. And with the right partnerships, getting these PCs placed in low income homes might give peripheral and software makers the opportunity to sell printers and software and other items in a market they've had no reason to target in the past.

But how much of a factor these households are playing in Free PC's strategy is unclear. Its Web site does say that household income is one of the factors considered in selecting the first 10,000 customers. But they give no clues regarding the minimum household income of their target demographic.

Like many people, I avoid advertising on the Web. I rarely click on banner ads, I close unwanted pop-up ads, and spend at least 30 minutes a day filing spam complaints to ISPs all over the globe. Free PC is not for me.

But there are people who desperately want to be a part of the information revolution whose only barrier is the money to buy a PC. I think these people represent a great business opportunity for firms like Free-PC, which is likely only the first entrant into this new angle on the PC business.