|
Free Net on Dell's new PC
|
 |
July 27, 1999: 2:50 p.m. ET
Company to sell computer for $959, give away access for a year
By Staff Writer Randall J. Schultz
|
NEW YORK (CNNfn) - Dell Computer Corp. Tuesday launched its own spin on the increasingly common bundling of computers and Internet access service, and competitors may have to shift their plans as a result.
Under Dell's new strategy, if consumers purchase a $959 computer, they will receive a year of Internet access with Dellnet, the company's ISP.
The move differs from the recently popular model among companies like CompuServe, which offer a rebate for a low-end computer, usually at the lowest cost model's price, making the computer essentially "free."
However, those companies usually require consumers to sign up for a three-year hitch with their Internet access service, which effectively subsidizes the price of the computer after a couple of years.
Dell places its bets
Dell (DELL) is making a number of wagers in coming up with its PC/Internet strategy. First, it believes that customers want a little beefier computer.
"With the subsidized PC model, you may be getting less hardware than you're going to want to do all the cool stuff that's out there on the Internet," said Paul Bell, general manager of Dell's home and small business group.
The computer Dell is offering includes a 400MHz Intel Celeron processor, 32MB of RAM and a 6.4GB hard drive, along with a 15-inch monitor. 
By contrast, in order to get a computer free with CompuServe's deal, you'd get an emachines computer with a 366MHz Intel Celeron, 32MB of RAM and a 3.2GB hard drive, with no monitor included.
Additionally, Dell believes that its name is worth something, according to Richard Shaffer, technology analyst at Technologic Partners.
"Dell feels they don't have to offer a free computer, and the Dell name means enough that they can offer this," said Shaffer.
"Those who are offering free computers have no reputation to offer."
While many computer companies and Internet firms are struggling to find the best way to bundle hardware and access together, the free computer model has emerged as a powerful, compelling trend, especially since most home users utilize their computers mainly for surfing the Web.
However, Roger Kay, commercial desktop systems analyst at tech research firm International Data Corp., said Dell's strategy may move other companies to rethink their strategies.
"There's definitely an appeal to the shorter sign-up period [for Internet access]," said Kay. "It might be a good calculated risk to not having to commit for three years. It seems like a long time."
Indeed, Dell officials Tuesday touted the Web's constantly evolving ways as proof of the soundness of their strategy.
"We thought it was questionable wisdom to lock yourself into something that's available now," said Janet Mountain, general manager of Dell's consumer division.
"As you look at broadband, customers are going to want to upgrade to that at some point. We felt it was much more appropriate to take them up the technology chain."
Some of technology's history also may appear to be on the side of Dell. In the past, long-term subscription models fell to consumer taste and evolving market research.
For example, in the earlier days of cellular phones, customers routinely signed up for at least a year's service. It was a model that seemed unshakable. Now, month-to-month service is routine, turning the old strategy on its head.
Consumer choice, consumer confusion
While Dell's spin on bundled service may seem to offer consumers greater choice, it also adds further to the confusion buyers may feel to the offerings that are out there. Dell general manager Bell acknowledged as much Tuesday.
"It's getting harder for customers to evaluate what's being offered," said Bell.
When terms such as "free PCs" are thrown around, buyers may find themselves being less investigative, according to IDC's Kay.
"All consumers know there's nothing that's completely free," said Kay. "But they still go for the idea that something actually is free."
One advantage Dell's model has, he said, is that Dell gets paid right away. Unlike some other offers, where the company must wait years to make back their investment, Dell gets its money up front.
Dell's reputation as an efficient manager of its business -- it's the second-largest computer maker in the world -- makes it likelier that its move will be a smart one, Shaffer said.
"It's really about the cost of customer acquisition and Dell, as a very cost-control oriented company, knows better than anyone else what are the costs of finding a new customer," Shaffer said. "This is their best guess at optimum return."
Dell's announcement of its U.S. Internet access offerings -- it already offers access in some European countries -- came with other news as well.
Dell teamed up with Snap.com, the portal service of NBC and CNET, to launch a customized Internet portal that will be distributed on all Dell computers sold in the United States.
Buyers will be able to customize the portal service according to their own interests and will be given Web page building services. Additionally, Dell is offering customers 20MB of free storage space, allowing them to store computer documents for access both from home and remote locations.
The moves come on the heels of its announcement last week that it would offer an online auction service for computer and related peripherals items.
Dell said it plans further changes and may even adopt new ISP pricing models in the future. "Loyalty can be lost very quickly if you do not have an efficient price in the marketplace," said Bell.
"We certainly expect there to be other participants that are going to try to do things like this. The barriers to entry are very low and we're only going to prosper if we're ahead of the process." 
|
|
|
|
|
|
Dell Computer
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
