Net Appliances Unplugged
Sept. 5, 2001 -- Computer manufacturers had high hopes for so-called Internet appliances — devices that would allow consumers to easily get on the Net without learning how to use complex and costly personal computers. But for now, the hopes are quickly sinking — prompting many to abandon the market while they still can.
Nearly a dozen manufacturers — ranging from start-ups to established PC makers — have tried their hand at developing and selling these simple Net access devices over the past two years in an attempt to get more consumers online.
The machines, as the name implied, were suppose to be as easy to operate as a kitchen appliance. But such simplicity also meant sacrificing some of the conveniences of a full-fledged PC — such as a hard drive to store information from the Net. And to keep prices for the hardware low, most makers tried to recoup costs by locking consumers to lengthy service commitments for the machines' Net access service.
Hasty Retreat
But consumers have balked at such compromises, leaving makers with no choice other than to beat a hasty retreat. The latest to sound a strategic withdrawal: consumer electronic giant Sony.
On Aug. 30, the Japanese company announced it was pulling its $499 eVilla machine, just two months after the device's much-ballyhooed launch in July. The device "fell short of our initial expectations in terms of stability and usability," the company said in an e-mail to the press. The company will buy back the machine from consumers and turn off the eVilla service on Sept. 13. Sony also made no mention if what it touted as its "network entertainment center" would one day return to store shelves.
Sony's move mimics those made by other once-hopeful Net appliance makers. Last March, 3Com canceled its Audrey Internet access device after only six months of disappointing sales. And back in November, startup Netpliance stopped making its sub-$300 I-opener machine due to rising production costs as well as lagging sales.
Consumers Choose Computers
And as industry analysts note, the tech industry has been hit hard by lagging sales in general. But Net appliances have been hit especially hard since tight-fisted consumers questioned just what they were getting for their computer dollars.
"Given the decrease in PC prices lately, [Net appliances] look like less than the good deals that they use to be," says Jed Kolko, an analyst with market researcher Forrester Inc. in Cambridge, Mass. Although PCs may be more expensive and complex, they can do a lot more than just access the Net — a fact that isn't lost on most consumers. "PCs are hard to compete with, especially if you're offering it for not that much more money than a network appliance."
And with PCs and Internet access already in over 50 percent of all households in the United States, some analysts also wonder if the market for simple and cheap Net access has disappeared altogether. "There is a percentage that just doesn't want [Net access] no matter how cheap the hardware or service," says P.J. McNealy, an analyst with GartnerG2 in San Jose, Calif. "You just can't get people to bite."
Still Hopeful
Some companies, however, aren't willing to write off the market just yet. TaShana Jett, a senior manager for Compaq, admits that the current market for Internet appliances may not be a "mega volume play" for now, but "Compaq has complete confidence it will be," she says. But to get there, Jett admits that the focus of Net appliances such as Compaq's iPAQ Web appliances must change.
Instead of aiming them toward first time Net users afraid of owning a PC, Jett says that the market for Net-only devices may lie with households already enamored with the Internet. With a dedicated Net access machine, family members households can access the Web without tying up the PC which another member might need to balance the household budget or finish up some office work brought home.
But to woo over a tech-savvy crowd rather than the Net-neophytes, Jett says that the company has implemented radical changes. For example, the iPAQ Web appliances now offer six months of free Net access with Microsoft's MSN service. After that, users can switch over to almost any ISP rather than stick with MSN. And prices for the devices have fallen even lower — one model costs just $299.
Still, analysts aren't exactly bullish on the prospects. "This market's on hold for at least another two years," says GartnerG2's McNealy. At that point, the cost of pricey Net appliance parts — such as the LCD screen — will be much cheaper, making it less of a purchase concern for consumers. McNealy also says that by then, more homes will have faster dedicated Net connections which will drive the need for an easy device that will remain connected to the Net all the time. "But that vision is still a long ways off," says McNealy.