When retail rival's Time and Tiny released a free PC offer many wondered if the home PC market would ever be the same again.
With profit margins so tight, how anyone can reduce prices any lower - let alone offer them for free? (see Newswire 30 July).
Both deals involve the company's ISP arrangements although the Tiny deal recoups some of the money back by acting as an agent for a telco. This means that Tiny customers sign up to its telco and spend at least £25 in call charges for at least a year.
Time requires its consumers to join its ISP and pay £9 a month for three years. Both deals follow similar experiments in the US where a vendor, called Free PCs, gave away Internet ready Compaq PCs, and another business is giving away 10,000 Apple iMacs. (see Newswire 2 August)
The catch with that deal was that the consumer had to agree to have 10 hours of irritating advertising pumped at them while they surfed.
Compaq UK senior consumer product marketing manager Lisa Clark said the US deal was reasonably successful but it had no plans to run a similar scheme in this country, unless it was approached by one of its dealers.
There was a difference in the ways ISPs and telcos worked in this country and Clark was uncertain if a similar deal would work here.
"In the US we sold the PC to the supplier for the full cost and they made the money back by bundling it with advertising. Our margins were unaffected," she said.
So how does anyone hope to make money in the UK? For a start there is an even lower margin on the kit. Free PCs, which are connected to a television, come without a monitor, boast some obsolete technology and come without software.
In other words the kit is not that good if you are interested in serious computing power, but great if you want low cost Internet access. A customer will also have to outlay more cash on expensive software which would be traditionally bundled with an ordinary PC.
So with unit costs lower, any deals with telcos, or advertising sales on the retailers web sites more than makes up the cost of providing the free PCs. But Bloor Research's chief analyst Martin Brampton said that the retailers had another vested interest in pushing what was in essence an 'Internet only' product.
He believes that Tiny and Time are testing the water for a much bigger product push in the future.
"I expect they will be following up with Internet only machines designed for home use in the near future," Brampton said.
He predicted that the product will have a basic operating system which does not need a Windows licence (which always pushes the cost of a PC up) and will probably be free.
Clark agrees and hinted that Compaq had already got plans on the drawing board for such a product, although she could not say when and if it would be released.
Laying the groundwork for such a product means that consumers have to be properly primed to think of the Internet without getting PC functionality.
Brampton said that the free PC schemes would open the Internet only market in much the same way as Freeserve did for ISPs.
"It will not mean the end of home PCs it will just put more people onto the Internet," he said.
Time marketing manager Steve Simpson admits that the product is designed to provide families, who otherwise would not get a PC, with Internet access and a good basic starter PC.
However the aim of the free PC scheme was to push up registrations on Time's system ISP company rather than create more enthusiasm for an Internet only machine, he said.
"We have no plans to develop an Internet only machine at this stage," Simpson said.
However one spin off that Time sees from offering free basic PCs with Internet access is that they hope that when the customer comes to upgrade they will automatically stay with them.
"We are hoping to get a lot of repeat purchases by setting up these sorts of arrangements," Simpson said.
Hewlett-Packard's home PC product manager David Brabham was not losing much sleep over the wave of free PC deals.
"We are monitoring it, but when free PC deals were started in the United States we didn’t notice any of our sales being effected," he said.
Brabham described the UK free PC deals as an "interesting marketing development" which was really pitched at those families who needed Internet access alongside their traditional PC use.
"You have one machine for work but while you are using it the other members of the family want to play games or get their email. The free PCs are ideal in that sort of environment," he said.
Brabham pointed out that Tiny and Time were benefiting from the advertising and attention that the free PC offer was attracting. And while they may not be selling many free PCs their sales teams were using the calls to sell other products.
When Brabham approached Tiny's sales desk for details about the scheme he found they were reluctant to sell him the free PC and tried to convince him to buy a knock down price Pentium3 instead.
"It is almost like they did not really want to sell me their free PC," he said.
Tiny were unavailable for comment, but my "research" confirmed this. Time reported that its response from the public about its free PC scheme was "interesting" but would not provide details.
However not every retailer is looking at giving away its PC's, but are instead looking at ways of cutting the price. The Dixon's group is borrowing the same money gathering mechanism - a deal with a Telco (in this case Cable and Wireless) and its own ISP - but using the cash generated to offer a £300 discount on any PC in its range. (see Newswire 4 August)
The Dixon's deal offers discounts on ordinary telephone calls with 200 minutes free Internet telephone calls a month.
"We feel that this sort of deal is a lot more flexible for customers and gives them an up-to-date computer that they actually want," a spokesman said.
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