November 24, 1999 12:45 PM PST

Free PC company Gobi eyeing new services

Although many of the "free PC" start-ups have stumbled recently, one of them says that it's looking into expanding the type and kind of services it offers in 2000.

New York-based Gobi--which gives free computers to customers who agree to a three-year Internet service provider (ISP) contract--is looking at a number of ways to expand its product offerings next year, said Ganesh Ramakrishnan, Gobi's chief executive. Among the options, the company is looking at broadband connection services, expanding help desk support and even shipping smaller, more stylized computers.

Broadband refers to high-speed connection technologies such as digital subscriber line (DSL).

The company is also considering offering what can be called "Gobi lite" ISP service for additional accounts. The service would allow customers to access the Web through two or more computers at once without paying full price for two separate ISP accounts. Generally, to be able to have simultaneous use, customers have to route their ISP connection through a home networking system or maintain two or more such accounts.

"The big growth segment is the people who have had access to computers and who want to replace or add onto the machines they own," he said. Ramakrishnan was careful to point out that none of these plans have been announced but indicated that some of them could hit the market next year.

A number of start-ups emerged this year offering free or low-cost PCs. Although the hardware is ostensibly free, consumers have to agree to accept advertising or enter into long-term ISP contracts.

The concept proved wildly popular with the public. Most of these companies, however, quickly ran into trouble and controversy. Enchilada, also based in New York, folded weeks after first offering "free" PCs to the public. Microworkz, which offered heavily discounted PCs bundled with free ISP service, was besieged with customers complaints about PCs or refunds that never were delivered. The company is currently locked in a lawsuit filed by the State of Washington Attorney General.

In addition, FreeMac, which promised to start shipping free iMac computers to qualifying customers in October, has shifted its target date to November. No free iMacs have been released yet, said a source at the company on Friday.

Gobi differs from many in this field in that it is far more cautious and businesslike, asserted Ramakrishnan, a former investment banker who recoils against the "free PC" moniker. Customer credit checks are carefully screened. Customers who want to get out of the three-year contract early also have to pay a cancellation fee, which covers the cost of the hardware.

"Part of what the Internet has done is make people believe that they can become overnight millionaires," he said. "It is much harder than people think."

Under Gobi's service plan, customers get a Celeron-based PC with unlimited ISP service but have to pay $25.99 a month for three years. Customers have occasionally written to CNET News.com complaining that Gobi took inordinate amounts of time to ship an ordered PC. Ramakrishnan, however, said that the backlog of orders has been whittled down.

Still, skeptics abound that these businesses are viable. Gobi does not plan to earn its profits from hardware or even ISP services.

"The basic service and package is not a driver of profit for us," said Ramakrishnan. In fact, Gobi only begins to break even on customers at around two years into the typical three-year subscription plan. Rather, the profits will largely come from upgrades, selling supplemental products like printers and from advertising and e-commerce deals.

This is in marked contrast to the plans of major PC makers, all of which state that profit will still be made on hardware. Analysts have also nearly unanimously been skeptical of the ability of any company to subsidize hardware, let alone hardware and ISP service, through advertising and e-commerce.

Ramakrishnan acknowledged some of these concerns and admitted that Gobi's business plan will depend on corralling a larger volume of customers.

"Inevitably, the industry will move in this direction," he said.

 

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