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Weekly Column

There is No Such Thing as a Free PC: Why This Week's Flurry of Free Computer Hardware Isn't for Real and Probably Isn't for You

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Suddenly, free PCs are falling from the sky. My e-mail is overflowing with congratulations. "You called it, Bob!" they say. But I didn't call it. These are not the free PCs I predicted. These are not free PCs at all.

In case you've been living only on C-SPAN, an outfit called free-pc.com announced this week it would be giving away 10,000 or more PCs to people who would agree to watch ads displayed around the edge of their free computer screens. Visit the Web site, fill out a questionnaire, get a free PC. Or that's how it seemed.

Let's look at the details of this deal. The PCs are from Compaq, use 333MHz processors, 32 megs 'o RAM, a four gig hard disk, etc. In other words, it is Compaq's $699 low-end machine. The deal is not for a free PC, but for the free use of a PC for two years. It is a lease, and you have to give back the PC after the second year. But first you have to get the computer, and to do that, you have to finish that pesky questionnaire — a very large and comprehensive questionnaire that tells free-pc.com more than I would like any company in the world to know about me. And even if I complete the questionnaire, which I never would, then free-pc.com still has to pass judgement on me, deciding whether I meet the requirements set down by their advertisers. In exchange for this I get to compute like crazy in an 800-by-600 window on the 1024-by-868 screen. Everything that surrounds the computing window is ad space and can't be turned off.

Lucky me.

This is a great business. The PC leases are worth around $15 per month, tops, and that is being financed by Compaq, the manufacturer. Free-pc.com has no money down on this deal. Compaq makes a little money on the leases, but they stand to make a lot more money at the end of the lease when it comes time to get rid of the PC. If you are a participant in the program, you'll be offered the chance to buy the PC for, say, $200 or ship it back for $40 of your own money. Everyone will buy the damned PC and put it in their kid's room. At this point Compaq has already more than made its money back and gets a 40 percent profit margin on the resale alone. Compaq loves this deal.

So does free-pc.com. For one thing, they are on the map of the PC industry, practically overnight, with a very innovative product that almost does what they say it does. They have tons of free publicity, a $10 million investment they hardly even need from Barry Diller's USA Networks. And I'd be willing to bet they are getting a $6 per-month-per-PC kickback from the chosen Internet Service Provider. And don't forget all that advertising income!

But is it advertising income? I don't think so. On their Eeb site you'll see that free-pc-com says that after they find the right 10,000 people for this batch of PCs, they "may" give away even more machines. In this context, a hedge word like "may" really means, "No way, Jose!"

Of course, this makes no sense. Supposedly, this is a broadcast model like commercial TV or radio, and free-pc.com should want as many users as they can get. Ten thousand? I'd want 10 MILLION. The relatively small number makes no sense at all given the story they are telling. That means, of course, that the story is wrong. This is not a broadcast model at all. Free-pc.com isn't really selling ad space to companies that want you to buy things from them. This is solely a market research tool. Free-pc says they are doing one thing when what they are actually doing is finding very eager, very compliant guineapigs. That free PC is really the equivalent of the box Nielsen sticks on TVs in the homes of their sample families. But in the case of Nielsen, the families are being paid. With free-pc.com, they are just being conned.

So free-pc.com will select from the questionnaires of zillions of folks who think they are getting a free PC what they believe to be a sample that mirrors the demographics of computer users. Those users will give free-pc.com information about their every action with that PC. Every application, every URL, every porno JPEG will be logged and sent back to the mothership. And that's even before we get to the "ads."

The amount of revenue generated by 10,000 ad views is miniscule and certainly not enough to support the effort of free-pc.com. This is especially true given their attempt to get a normalized sample. It might make sense if the goal was to find a highly-qualified sample, like the readership of InfoWorld or PC Week. If they could get a few thousand eyeballs, each of which was responsible for buying a couple million bucks worth of hardware and software, the whole thing might pay for itself. But then again, they'd want more than 10,000 users. This is pure market research, though, so the point is not to make money, but to run tests and see how the subjects react. The ads those free-pc.com customers will watch will be the ads the rest of us find on Web sites a month or so later.

All this is perfectly legal, perfectly clever, but I find it insulting because it isn't what they say it is. And it sure isn't free.

Neither is the "free" iMac offered this week by Shopss.com. This outfit announced it would ship 25,000 free iMacs to spend at least $100 per month in the Shopss.com online mall for 36 consecutive months. The lucky users also have to pay $19.95 per month for specific Internet service, but that is waived in months where they spend more than $200.

Looking a bit further under the hood, it turns out that the $100 per month is charged whether or not you buy anything in the mall. So if you don't buy anything ever, the $999 (retail, remember they are buying wholesale) iMac will cost $3,600 over three years. Of course you can use that $100 credit to buy fine merchandise in the Shopss.com mall, but you'd better pay attention because there is fine print. To qualify, you have to spend $25 or more in at least four mall shops each month. So spending $100 in one shop gets you only $25 toward that $100. How many people will not notice this technicality? Lots of people.

Throw-in the $19.95 per-month Internet service that Shopss.com is wholesaling for no more than $8 per month and you can see that these folks are not doing anybody a favor.

I still predict that PCs will eventually be free. They could be free today to some people in the example of PC Week and InfoWorld I mentioned above. There probably are many programs offering free computers and Internet access to folks who buy enough junk to justify it. But we don't know about those deals because we aren't among those qualified people. It is cheaper to find the right folks through direct mail than by issuing a press release to news.com. But in the cases of Free-pc.com and Shopss.com, the broad publicity is an end in itself. These are new outfits that want to become household names and for a week or so they will be. A scam and a press release is certainly cheaper than doing a traditional product launch with ads and value-for money.

When PCs really are free, they will follow precisely the model that works for cellphones. They will be really falling from the sky when the difference between wholesale and retail Internet service equals the wholesale cost of the PC plus 30 percent. Applying that algorithm to today's Internet market, which offers a service margin of around $11 per month, the price point at which PCs become truly free is $300.

It's not that far away.

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