August 15, 2000 11:25 AM PDT

Compaq introduces new iPaq appliances

Compaq Computer expanded its popular iPaq brand today, introducing new Internet access devices, including the first Web companion device for Microsoft's MSN Internet service.

The new gadgets, as first reported by CNET News.com, mark a shift in how Compaq hopes to garner revenue. Since taking over as CEO last summer, Michael Capellas has moved the company away from pushing typical beige PCs and more toward making money on additional products and services.

The new iPaq products include a home Internet appliance based on the MSN Web companion, BlackBerry email pagers made by Research in Motion (RIM), a personal digital music player, and a home Internet connection and firewall device.

"This is part of the everything-to-the-Internet strategy Michael Capellas announced, and he talks about three parts of that: the infrastructure, the access and the solutions," said Mike Winkler, head of Compaq's commercial division.

Compaq introduced iPaq last November after a record-fast 100 days of development. The Houston-based company has sold more than 100,000 units of the PC-Internet device hybrid and expects to take in $1 billion on the product line this year.

Today's announcement is the second extension of the iPaq brand, following the April introduction of the iPaq Pocket PC.

Winkler said expansion of Internet devices "breeds different business models in themselves in terms of above-the-box revenue streams. Each of these products we're announcing has ongoing revenue opportunities for Compaq."

Finding success with devices, however, is proving to be a tricky matter. So far, most efforts to sell these stripped-down PCs to consumers have foundered. One problem has been that devices cost quite a bit to make, although consumers expect to pay less for them. In addition, the revenue from service contracts typically gets diluted between PC makers, Internet service providers and cellular carriers, dimishing the effect of "beyond-the-box" sales.

Only one of the new products, an iPaq version of RIM's BlackBerry email pager, comes out of Compaq's commercial PC division. The device will complement the iPaq Pocket PC, which is expected to be in short supply until early in the fourth quarter.

The iPaq W1000, based on RIM's standard BlackBerry pager, and the iPaq H1100, a branded version of the larger RIM 957 pager, are both capable of sending and receiving email.

Compaq will begin selling the iPaq W1000 immediately for $399 and the H1100 model in mid-September for $499. Unlimited airtime access will cost $39.95 a month.

Winkler said the BlackBerry pagers fit nicely into Compaq's strategy of making continuing revenue on ancillary products and services.

The other products come out of the consumer division, where Compaq had also hoped to sell the original iPaq but failed to generate interest.

"Compaq had hoped consumers would show more interest in iPaq, particularly because of style and price, but that doesn't appear to have happened," said Gartner analyst Kevin Knox. Still, corporate sales of the iPaq were a highlight of Compaq's second quarter, and many analysts have said it typifies a new type of business PC that will become increasingly popular.

At the Comdex trade show in November, Microsoft chairman Bill Gates unveiled the first prototype MSN Web companion, which the software maker co-developed with Compaq.

Compaq's version, the iPaq Home Internet Appliance, comes with a 10.1-inch LCD display, 56-kbps modem, wireless keyboard, built-in speakers and four USB ports. Options include a USB mouse, Epson Stylus Color 740 printer and JBL speakers. The iPaq appliance sells for $599 and can be reduced by $400 with a three-year commitment to MSN Internet access.

"The home Internet appliance--the way to think of it is really the Web in a box--is not a full-functioning PC," said Mike Larson, head of Compaq's consumer division.

Larson said there are two areas where Compaq expects to garner revenue beyond the sale of the Home Internet Appliance: Internet access fees and traffic fees. "The product is offered with a rebate from Microsoft?so obviously the access streams don't start until that period of time expires."

Though Compaq is first out the door with an MSN Web companion, it isn't the only company planning to release one. Emachines, for example, previewed its version in June.

Gadget groupies are likely to be most impressed by the iPaq Personal Audio Player, or PA-1, a pager-sized portable for playing digital music files, such as MP3s.

"It's the first product to support MP3, WMA and AAC," Larson said. "It's also compatible with multiple digital rights management solutions, so we're taking care of the artist's intellectual property."

The $249 iPaq PA-1 packs 64MB of flash memory, RioPort Audio Manger software, a backlit display and USB connector.

The iPaq Connection Point offers 56-kbps dial-up or broadband connectivity, wireless networking and firewall protection. The $499 device is expected to be available within two months.

About 20 percent of Compaq's consumer revenue comes from non-PC sales. But to increase this kind of revenue the company hopes to make devices that transcend the traditional PC model.

"We think that we're in the third phase of the PC industry," Winkler said. "The first phase was marked with a lot of innovation and growth as the industry was defining itself. The second phase it became standardized and commodified, some would argue, the PC everywhere. The third phase is back to innovation."

 

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