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The High Cost Of "Free" P Cs


Technology & You

The High Cost of "Free" PCs

The strings attached often kill the benefits. But a few deals are worth checking out

There's no such thing as a free PC. This should not come as a surprise to the worldly readers of BUSINESS WEEK. But judging from the current flood of offers for free or deeply discounted computers, you might think that the laws of economics and common sense have been repealed.

In fact, all of these deals come with significant strings attached and require close examination. Some are simply losers. Others can provide substantial savings, but only for the right customers.

The offers come in two categories. In one type, consumers get a free computer, along with free Internet access, but have to accept a constant stream of advertising on the screen. In category two, the customer gets a free or deeply discounted PC in exchange for a long-term contract for paid Internet service.TAILOR-MADE. Free-PC of Pasadena, Calif., offers the best-known of the free deals. If you qualify after filling out a rather nosy questionnaire about your education, income, and lifestyle, you get a free PC, typical of a system you could buy for about $500, with a 15-inch monitor and free Internet access. The catch is that about 40% of the display is covered with a changing stream of ads supposedly tailored to your interests as revealed by your browsing habits. You agree to let Free-PC monitor your activities online and to sell aggregated data on its customers' activities. To me, this deal makes sense only if there's no other way you could afford a computer. If that is the case, Free-PC probably won't accept you as a customer anyway. Nonetheless, Free-PC reports plenty of takers. And a startup called FreeMAC.com plans to give away 10,000 Apple iMacs in a similar deal.

I think most people will be a lot happier with deals built on the model of the cell-phone business, where the carrier subsidizes the cost of the equipment in exchange for your agreement to buy service for a period of time. Here, it's Internet service providers who are subsidizing computer purchases.

Some of these deals are a bit funky. For example, a company called Online Amigo.com (www.onlineamigo.com) offers a free PC if you subscribe to two years of FlashNet Communications service at $21.95 per month. The problem is that you get a refurbished, creaky 75 MHz Pentium, a computer best suited for use as a doorstop.

The offers I find most appealing come from America Online's CompuServe unit, Microsoft Networks, and Prodigy Internet, in cooperation with various retailers and computer makers. They all work more or less the same way. You sign up for three years of Internet service for between $19.95 and $21.95 a month and get a $400 credit or rebate toward the purchase of a new computer. Participating computer makers include Compaq Computer, Hewlett-Packard, IBM, and eMachines. In late August, Office Depot, for example, was offering an eMachines eTower 400i with a 14-inch monitor and either a printer or a scanner for $149, after rebates. Add $21.95 a month for a three-year CompuServe subscription. Best Buy advertised a more capable IBM Aptiva for $299, after rebates, with a three-year Prodigy subscription priced at $19.95 a month.

These are attractive deals, but the up-front commitment to $700 or more worth of Internet service means they are not for everyone. One group that will find little value in the arrangement is college students, since nearly all schools provide free, and often high-speed, Net access. Others who could well end up losing from these deals are the lightest and heaviest users of the Internet. People who only want Internet access to read E-mail and do a little light Web browsing would likely do better just buying an inexpensive computer and signing up for a $10-a-month limited-access account with a service provider.

People who use the Internet a lot may also be poor candidates. That's because three years is a long commitment at a time when Internet access technology is changing rapidly. Heavy users are likely to be the earliest adopters of high-speed cable or digital subscriber line service as it becomes available in their areas. There's also a chance that the cost of Internet access could fall dramatically, meaning that the price of a cheap PC is expensive Internet access.

It's by no means clear that the cell phone-style subsidies will become the model for the computer market. Dell Computer and Gateway, for example, are going the other way, bundling free or reduced-price Internet service with computer purchases. While the market sorts itself out, there's the potential for some good consumer deals. But before jumping, assess your present and future needs carefully--and read the fine print.Questions? Comments? E-mail tech&you@businessweek.com or fax (202) 383-2125


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