February 8, 1999 4:10 PM PST

Site jams after startup plans PC giveaway

Free-PC's Web site was jammed with inquiries today after the startup announced it will give away computers and Net access to users who agree to view advertisements.

Since midmorning, the site had slowed to less than a crawl, eventually becoming inaccessible. But by late afternoon, the site was back to speed and able to accept new applications.

"We were expecting the site to be popular, but this is ridiculous," said Free-PC CEO Don LaVigne.

The company will provide a free sub-$1,000 Compaq Presario computer and Internet access in exchange for permission to target advertising messages directly to customers' desktops--even when they are not online.

The company said it will ship its first 10,000 units to qualifying customers during the second quarter.

USA Networks, which owns online properties Ticketmaster Online-CitySearch and Home Shopping Network, has agreed to invest $10 million in Free-PC.

"Free-PC is the breakthrough first product to start an inevitable trend," said Bill Gross, CEO of Idealab, Free-PC's parent company.

"[Merchants] will pay to reach you, so they essentially will subsidize the cost of the PC, indirectly," Gross said in statement.

The giveaway model is not new. Telecommunications companies have been giving away certain models of cellular phones in order to provide lucrative wireless service contracts. Cable operators also tend to provide set-top boxes at no charge.

Free-PC customers will provide detailed information about themselves, including their age, income, and family status, along with information about personal tastes and interests. This data will then be used to target ads at particular users.

"For advertisers, Free-PC represents the first real opportunity to reach a mass audience via the computer," said LaVigne. "Advertisers are willing to pay a lot for targeted consumer."

Ads will appear in a frame that surrounds the working area of a high-resolution screen. The ads are drawn from a collection stored on the hard drive that ships with the PC, allowing rich media and interactive ads to be displayed instantly without the delay associated with downloading Internet ads. The advertisement database stored on the PC will be updated periodically in the background when the user is online.

The company said there will be contractual terms that demand that the user not tamper with the advertising information on the hard drive, including safeguards to prevent them from erasing that information.

"That part is straightforward, but reformatting the whole drive is another matter," said LaVigne. "We are still working on that and hope to have it resolved by the time we ship."

The company said it is considering requiring valid credit card numbers to make sure the terms of the contract--mainly to not tamper with the machines or to outright steal them--are met.

"We won't charge for the machines but we will have (the possibility of charging users) hanging over their heads if obligations are not met," said LaVigne.

Free-PC has also signed an agreement with Cybergold, whose advertisers include Disney, ESPN, credit-card issuer MBNA, Internet car retailer Autobytel, Earthlink and America Online, among others.

LaVigne said that the deal with Compaq Computer is not all that special, with Compaq getting its AltaVista portal as the start page.

"Compaq didn't cut a extraordinary deal in terms of the money for getting the PCs," said LaVigne. " But computers are getting to the point where they are so cheap."

Lavigne added that for now now the advertising fees cover only the cost of the PCs. "More than that, we just don't know yet."

 

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