Big boys storm free PC market
- 30 June, 1999 13:01
Global PC vendors are racing to capture consumer attention in the belief that PCs will run out the door if purchase prices are incorporated into long-term monthly commitments with unlimited Internet access.
As a result, Australia's first "free" brand name PCs went on sale last week.
Harvey Norman introduced a limited IBM-Aptiva-based offer on June 24, marketed as the "Zero Dollars PC". It allows punters to walk away armed with a PC and unlimited Internet plan without spending a cent. They are, however, locked into a 30-month deal demanding $79.95 installments.
On the same day, time-honoured national retailer Myer Grace Bros (MGB) unveiled a similar promotion which sees Hewlett-Packard PCs marketed as a "Big Net Set", including a $299 up-front charge and 36 subsequent monthly payments of $79.95 each.
Peter Geer, computer buyer for MGB, confidently believes the order for "thousands" of HP Pavilion 4411s (an exclusive model configured for this deal) that he placed is the biggest order for PCs by a retail com-pany in Australia.
"It is a finite offer which we have been planning for about four months," Geer said. "Our computer sales have been going through the roof and we believe there is a shift in the way people want to buy computers.
"We do a lot of customer research and have discovered that people want to buy brand names. However, for many, $2000 is too much to pay for a PC. So we expect this to increase even further the volume of PCs being sold."
Geer said consumers see the Internet looming large in everyday life and want to get connected for themselves or their children. They have to be wary of long commitments to unbranded hardware and substandard Internet service, which he claims will be avoided by this package which incorporates "three premium brands".
"The Big Net Set allows consumers to buy a computer and get onto the Internet without having to resort to a white box," Geer said.
Tony Gattari, Harvey Norman's general manager, computers and communications, said it had secured "a few thousand" IBMs and was selling them on behalf of One.Net with no initial expense.
"Buyers enter into an agreement with One.Net and we are an agent for them," Gattari said. "As we have seen with mobile phones, subsidisation of the PC is now a reality and basically it signals a big shift in the way people buy PCs.
"It won't secure 100 per cent of the market but it will be very popular with home buyers. We are very excited to be able to offer IBM PCs with no up-front cost."
Gattari said the "Zero Dollars PC" would be available in all Harvey Norman stores bar Tasmania where One.Net is yet to commence operations. Once the current stock of IBM Aptivas are exhausted, he indicated the retailer would be looking for other similar packages.
Both Gattari and Geer were not expecting the limited stocks to last long and reported excellent early acceptance of the offers from consumers.
A spokesperson for Compaq, the third big retail PC brand, said it had no similar offers in the pipeline but was noting the trend and declined further comment.
The low entry price and long-term ISP plan marketing method for new PCs was pioneered in Australia through Retravision by local assembler Edge Technology and its sister ISP company EISA (ARN, June 2, page 16). This was quickly followed by Compucon's announcement that it was going to present the market with the first free PC with Internet connection plan (ARN, June 16, page 1).
With the ISP component of these new deals being facilitated by Optus and One.Net respectively, it also signals recognition of this marketing strategy by big telcos as a good way of obtaining long-term subscribers.
Analysts have identified those ISPs with the highest number and lowest "churn" of subscriptions as the ones most likely to attract the greatest revenue growth and therefore interest from investors.
IDC's PC expert, Logan Ringland, said the MGB and Harvey Norman deals open a "whole new can of worms" for the PC market and "there is definitely going to be some growth.
"There is a new client base entering the market and there may even be some cannibalisation of consumers who could afford the up-front purchase price," Ringland said.
He questioned whether consumers would be as happy at the end of the deal as they are at the beginning, saying that technology changes so quickly and prices are going down so rapidly.
Harvey Norman "Zero Dollars PC": IBM Aptiva 11aAMD K6 2/380MHz processor32MB RAM4GB hard disk40 x CD-ROM15 inch monitor56K v.90 data/fax modemUnlimited Internet connection for 30 monthsbuilt-in network card12 month back-to-base warrantySoftware: Windows 98, Lotus Smartsuite Millennium, World Book 99 Encyclopaedia, Quicken V7, Internet Explorer, Netscape Communicator, IBM Update Connector, Norton AntiVirusCosts:
PC value: $1799
Unlimited Internet connection: 30 months x $79.95Total cost: $2398.50Fast FactsMyer Grace Bros "Big Net Set": HP Pavilion 4411Intel Celeron 366MHz processor32MB SDRAM4.3GB hard disk32 x CD-ROM15 inch monitor56K v.90 data/fax modemUnlimited Internet connection for 36 months12 month back-to-base warrantySoftware: Windows 98, MS Works 4.5a, Quicklink III, Quicken 98, MS Money 98, EasyPhoto, MS EncartaCosts:
PC value: $1699
Internet connection: 36 months x $79.95
Total cost: $3177.20