The hidden costs of free PCs

The bold experiment in "free" PCs is hitting some turbulence as these companies try to get off the ground.

A bevy of start-ups including Gobi, DirectWeb, and Enchilada offer free PCs with Internet service at monthly rates as low as $19.95. Others, like Microworkz, offer dirt-cheap $299 PCs with Internet access service thrown into the deal.

But, while the price might be right, the service customers are getting is below par, according to many.

The problems range from not having the capability to handle the orders for the hardware and services they advertise, to support shortcomings, to alleged credit card misuse, all the way to problems that can render these PCs just as expensive as typical computers found in retailers.

One of the most conspicuous problems is backlog. For example, DirectWeb computers are backordered up to eight weeks. The company, which gets its computers from Ingram Micro, currently faces "a backlog situation," which DirectWeb is working to ameliorate, according to one sales representative.

Microworkz, like others, also got clobbered by orders. "When the March 22 [launch] announcement hit, we were buried in requests. Digging out of a 50,000-unit hole was a tough task," said Rick Latman, chief executive of Microworkz. Latman says, however, it can now meet orders in usually two weeks.

But some are less chartible about delivery times at Microworkz and what they claim are financial peculiarities. "We ordered from them on and never got anything but the runaround. They cashed our check and delivered nothing. After we canceled our order--after waiting 16 weeks--we've waited for over 10 days now for our refund...the $675 we sent Microworks isn't 'free' to us," said one user in an email.

"Coming from the hole we just cleared, there were some nightmare stories...It's regrettable but we have worked our way out of the problems," said Latman.

Support may also ultimately be one of the biggest issues that separates these start-ups from the established PC companies. Dell Computer, for instance, offers round-the-clock free support for one year with a PC purchase. Dell will also go to the customer's premises if necessary to fix the computer. Compaq offers similar service.

But for most of these newer companies, this kind of support is only available at a price. For example, Enchilada requires a four-year contract for Internet Access. However, in order to get service that's on par with Compaq or Dell, a customer must pay $29.95 a month for the "Enchilada Grande" Internet service and PC package, which adds up to about $360 a year, and more than $1,400 over four years.

The basic rate of $19.95 only provides a one-year "manufacturer's warranty," according to a sales representative. In this case, a customer must haul the machine to a local technician for repairs, according to the representative. The representative could not give details on the level of local support.

"The issue is whether the PC is cheap or not. Theoretically, if you're leasing, they should keep it going, as part of the service. But in practice it may not work. That is part of the issue of quality," said Roger Kay, an analyst with International Data Corporation (IDC).

For Microworkz, there are only 15 days of technical support, unless the customer pays a lump sum of $49.95 for a 24-hour, 3-year warranty. But a Microworkz representative said that, for the time being, the only support available is from 9 a.m. to 5 p.m. though the sales representative expected that 24-hour support would be available soon.

Gobi, for its part, apparently only provides support through electronic mail. This can be frustrating for some users who need a problem addressed immediately and may have to wait many hours or days for a response.

Frustrated customers
One buyer who contacted CNET News.com said that he had placed an order which had somehow been duplicated. He found it exasperating to rectify the botched order. "I emailed the 'contact us' address and received an answer saying they would look into it. Then I checked the status of the order the next day and both orders were showing in process. I emailed again. Now none of the contact addresses are deliverable. My question to you is: Does this company exist?"

Though this problem was resolved, others have expressed similar sentiment because they have not been able to contact Gobi directly when they order a computer online. "Gobi wanted date of birth, social security number, in addition to the credit card info...," said one customer who was upset because he could not talk to anyone directly at the company to find out if they "existed" or not.

"Currently, Gobi members are the only customers who are provided with a contact number to speak with a live agent. However, coinciding with our national launch next month, we will offer this facility to everyone through a toll-free number," said Ganesh Ramakrishnan, chief executive at Gobi.

"We are expending a significant portion of our efforts at this point to improve the quality and response time of our customer service," he added.

Other gotchas present themselves as security deposits. DirectWeb requires either a $150 or $250 security deposit which the company keeps for six months. Also, if users cancel service, they must continue to pay for the PC anyway until the 36-month period is up, which can end up costing well over five hundred dollars. This type of penalty is imposed by most of the start-up companies.

Shipping fees can also be high. Enchilada charges $99 for shipping and handling.

But ultimately, the larger issue is one of long-term viability. "In terms of sustainability, none of these guys have demonstrated a sustainable business model," said IDC's Kay. He added that Dell is going to launch an almost-free PC model which could spell trouble for the smaller companies. "I would say, stay tuned in the almost free-PC space...support costs and customer issues will start to eat some of them alive."

"It is not easy to be a PC provider," added Stephen Dukker, CEO of Emachines, which sells discount PCs.