March 21, 2001 10:45 AM PST
Audrey's life cut short
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3Com on Wednesday said it will discontinue Audrey, its Web-surfing appliance, and Kerbango, an Internet radio, by June. 3Com acquired Kerbango, the radio's maker, for $80 million in June.
The company will also likely disband its entire Internet appliance division created last year, although it will continue to make home-networking products. Audrey and Kerbango were the only two products to emerge from the appliance division, a spokeswoman said Wednesday, and no further products are planned. 3Com will also discontinue its Webcam, which comes out of a separate division.
Audrey's quick demise--the $499 device debuted in October--is the latest evidence of a growing trend. Namely, consumers don't want simplified computing devices for surfing the Web, or at least they don't want them yet.
To date, almost all of these devices have failed to take off in the marketplace. Netpliance, a start-up that sold the I-opener Internet terminal, already stopped selling the product itself and announced mass layoffs in February.
Earlier this month, Gateway said it was reevaluating its plans to come out with a Web tablet, a portable device that connects wirelessly to the Internet. Currently, Gateway markets an Internet terminal similar to Audrey called the Touch Pad.
"While we believe in the potential of the category, it's clear that it will take longer to develop than originally planned and likely to generate losses for the foreseeable future," 3Com Chief Executive Bruce Claflin said in a conference call.
Intel and Compaq Computer have marketed Internet terminals as well, but sales have been fairly limited, analysts have said. Although all of these devices differ, they generally follow a similar design. They are small, can boot up more quickly than a PC and contain a few basic applications.
Microsoft's WebTV is probably the most successful non-PC Internet device released yet, but subscribers for that service hit a plateau at around 1 million. With its new UltimateTV service, Microsoft is de-emphasizing e-mail and Web surfing, instead touting digital program recording.
Still, dreams die hard. Sony plans on coming out with the eVilla, an Internet appliance, in April. Intel has also been touting a Web pad.
Cost has been a major problem for most device engineers. Flat-panel screens and hard drives remain fairly expensive, making it difficult to create a device that costs less than a PC.
"The companies are not seeing the adoption rates that they hoped for a year ago," said The Yankee Group analyst Milosz Skrzypczak. "What is a big deal is reducing the costs to a point where the price is attractive to consumers. The Audrey was between $400 and $600. The value proposition is just not there. It costs more than an Emachine sitting next to it."
Gateway and others have predicted that these devices will catch on when home broadband connections become more prevalent. At that point, consumers might want to buy the devices as a second Internet access point. However, broadband in the home is still limited, Skrzypczak said.
The Yankee Group estimates that by 2005, 30 million U.S. households will have high-speed Net access via cable, DSL (digital subscriber line), satellite or fixed wireless.
Once that happens, Skrzypczak said, "it gives you a nice addressable market for these devices."
3Com wasn't shy about advertising Audrey. The company placed ads in a number of magazines and featured it in television slots. 3Com sold Audrey directly, but was also signing up retail partners.
Audrey could be placed in a number of rooms, but it was designed with the kitchen in mind. Its outer case had a finish that could be cleaned with a sponge. The device came in five colors that would make Martha Stewart proud: slate, ocean, sunshine, meadow and linen.
3Com's decision to send Audrey to the glue factory comes amid a broad slowdown in technology purchasing. The company will also streamline its structure. In total, 3Com hopes to cut $1 billion out of its operating costs by the end of the company's coming fiscal year, which will end in May 2002.
"The abruptness and severity of the current technology slowdown has clearly impacted 3Com," Claflin said in a statement.
In a bit of deja vu, IDC analyst Bryan Ma earlier this month said, "I certainly wouldn't be surprised to see?companies exiting the (Internet appliance) business or divisions within large companies exiting the business."
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