By William Fellows
The Microsoft Network did a great job of not talking about its free PC strategy for signing new subscribers on Tuesday, so America Online Inc got to shout from the rafters yesterday about its plan to effectively give customers a PC when they sign up for three years of CompuServe service. The program will run through July initially.
AOL has bought a small stake in free PC leader Emachines Inc to seal a deal in which buyers who sign for a three-year CompuServe contract get a $400 rebate on an Emachines system, which costs $399 (monitor and printer priced separately). CompuServe costs $21.95 a month for unlimited use, bringing the total sale to $790.20.
The rebate is effective at Emachines outlets including Best Buy, Circuit City, Costco, Office Depot, Sears and Staples. AOL says it will extend the model to other PC brands and retailers as soon as it can. AOL provides the PC subsidy so the retailer still rings up the same sale. Stripping out the usual deductions – including retailers 2% gross margins – will probably leave AOL around $320, meaning customers are effectively getting CompuServe for around $9.00 a month.
It’s the first real shot in the arm AOL has given its CompuServe online service but will need some significant volume to drive any revenue. That’s why AOL admits the campaign is aimed at building the CompuServe brand and trying to tie-in new subscribers for three years. It’s got nothing to do with the demographic of this type of PC buyer. AOL maintains CompuServe’s demographic is 35 to 54 year-olds – spiky-haired kids who want to chat online should continue to look elsewhere, it’s said in the past. AOL claims 2 million CompuServe subscribers, but then it’s been saying that for more than two years. Must have a huge churn rate. Locking subscribers in for three years may ease that but it gives the feel of a last gasp at the AOL corral. AOL is also banking on consumers not appreciating the proximity of broadband net access, which will arrive way before their three-year contracts are up.
A couple of weeks ago AOL was rumored to be interested in acquiring $200 PC appliance maker Microworkz.
AOL and MSN are pursuing yet another strategy for scooping up whatever new net customers there remain out there, one that’s based on the cell phone model. You get a ‘free’ phone when you sign on with a provider. The reasoning is that many consumers who are considering buying a PC must be doing it with one thing in mind; getting online.
MSN has had a rebate deal in place with regional computer superstore Micro Center since April 12 which is ongoing. On Tuesday, it signed Staples to the program for a one-week test period through this Sunday. Customers sign for a one-to-three year $20 per month access plan worth up to $720 to MSN and get a voucher worth up to $400 to cash in against a PC. MSN said that could be Staples’ ‘house’ brand or any other – presumably including the Emachines line the retailer is peddling on which the AOL rebate also applies.
Left with around $250 after deductions and paying the rebate, that leaves MSN with around $250 which means Microsoft has to supply internet access at around $7.00 a month over the course of a three-year plan. It will earn more as viewership builds, adding to advertising revenue. If it comes to pass, then the consumer electronics retailers themselves could be acquisition targets, Wall Street figures. Best Buy, Circuit City and Radio Shack are expected to follow Staples in offering the rebate program.
Staples may have been the first major retailer to sign up for MSN, but lost the opportunity to crow about it when AOL moved in on the raft of Emachines retailers the following day. Staples admits it doesn’t always move at lightning speed when these opportunities present themselves.
The ball is now in the court of the flock of companies which have invested in cable networks to provide future net access to compete with ISPs. Will they join in and underwrite PC sales to win customers for three years using low-cost phone services?
