July 21, 1999 5:35 PM PDT

Will Apple join the "free PC" movement?

NEW YORK--There's no such thing as a free iMac, at least not now.

Financial analysts and others speculate that Apple may be working on a strategy for marketing subsidized or "free" iMacs in conjunction with multiyear Internet service contracts, but the company today indicated at Macworld that it's in wait-and-see mode.

"We don't like to talk about unannounced products or strategies," said Apple interim chief executive Steve Jobs, in response to questions regarding the so-called free PC movement. Jobs had previously delivered a keynote address to Macworld, the industry trade show devoted to the company he cofounded.

"Who knows what were going to do," he mused. "What we can say is we're watching the market closely."

PC companies, Internet service providers (ISPs), and even computer stores are currently trying to outdo one another with "free" or subsidized PC deals. While the terms of these deals differ, they typically revolve around letting a consumer have a PC for free or a low price in exchange for entering into a long-term ISP contract.

Emachines, for instance, is partnering with CompuServe and offering discounted service that essentially amounts to giving the hardware away. Big rebates on Internet service are also available with the purchase of PCs from many other companies such as Compaq Computer, too.

Such marketing programs have been proliferating wildly, joined by big names such as IBM, AOL, and Microsoft. Apple is expected to come out with an Internet strategy by year's end that could work in a similar fashion.

While attractive on the surface, these deals also come with their share of uncomfortable trade-offs. Jobs noted that consumers may wind up resisting the tempting offers because of the long-term contracts that have to be signed and the associated financial penalties that go with terminating the contract early.

Consumer misgivings aside, these service deals could wind up generating sales for PC makers at the expense of the iMac. Jobs discounted any hit these subsidies would have on iMac sales, noting that for the most recently completed quarter Apple sold more iMacs than at any time in the product's history, "so we must be doing something right with our business model."

Analysts say the Cupertino, California, company still needs to form a plan, because it will help gain--and retain--more consumers.

"[Apple] needs to do something to make it seamless and easy to sign up when a customer takes an Apple home," said analyst Richard Gardner of Salomon Smith Barney in a previous interview.

According to research from La Jolla, California-based Infobeads, only 69 percent of households that purchased any model of Apple computer connected to the Internet in 1998. By way of comparison, more than 80 percent of Dell and Gateway household customers in 1998 accessed the Internet, said senior analyst Matt Sargent in a written report.

Sargent said that providing branded Internet service could bring Apple up to the level of the rest of the PC industry "and perhaps challenge Dell and Gateway as the leading PC brand in reference to household Internet access."

Apple may not agree with that research, though. Jobs said today that 89 percent of iMac users are already surfing the Internet with an iMac.

 

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