Free PC Companies Struggling
from the business-as-usual dept
Apparently, many of the companies offering free PCs in some format or another are struggling. No big surprise there. In most cases, of course, the deals aren't really free, but more like a lease agreement that includes an ISP. In other cases, they're simply frauds. Either way it brings up some interesting issues. And with FreeServe about to go public and NetZero just filing, I wonder, which free business model makes more sense. Go ahead and vote...
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3 separate issues here...
The free pc concept is too new for the vultures to be circling, but many of the companies in this space don't understand the economics of providing hardware support to the customers they'll likely serve (newbies = lots of hand holding). These companies have been loathe to adopt pay-for-service fee structures, so the open-ended liability for service will likely kill them. The price sensitivity of their demographic is probably very big, so it would be tempting for them to cut costs to stimulate volume, but in so doing they expose themselves to greater support costs and red ink.Few free ISP companies have survived long enough to IPO in the US, but NetZero came along when the months needed to go from business plan to IPO can be counted on one hand. Good for them. Freeserve is very different because of the differences in the UK and US telecom structure. In the UK, you pay your Telco by the minute to surf -- no way around it, you have to pay for the local call. Layer a fee-for-service ISP on top of that and it gets very expensive. Enter Freeserve (last year), who doesn't prostitute your eyeballs with banners that follow you around (as NetZero does), but presents a hassle-free experience and a decent portal. Their revenue will likley come from advertising and commerce -- the last much more attractive than the first from a revenue perspective. They have killed AOL in the UK, and now there are a ton of copycats, leading one to believe that their share will not grow, but that they'll keep the same share as the ever-behind UK market grows.Lastly, the non-free ISPs are incurring the high costs of entering the "free PC" market for two reasons: one, they are chasing the "tail" of the penetration curve for PCs, and inducing that demographic to go on-line is more costly than it was to induce early-medium adopters to go on-line; two, they can stem attrition/churn by locking people into a long term PC contract. This is killer for them -- they take the PV of the revenue stream from $20/month, subtract a couple of hundred dollars (they aren't paying $400 for the PCs that they are giving $400 coupons for, btw), subtract for the support costs and add the revenue/eyeball factor and they still make money.
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