July 12, 1999 -- Newsletter #36

By Joe Burns

July 12, 1999 -- Newsletter #36
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Greetings, Weekend Silicon Warriors,

Do you have things in your life that you've always wanted to do but never seem to get the chance? Well, I got to do one of those this past weekend. I sat eleven rows back from first base at Jacob's field in Cleveland to watch my beloved Indians get beaten by the Kansas City Royals. Darn. My dream was to watch a game in the stadium, not watch the team get beat, before you ask.

Did you hear...

>AOL users have become SPAM artists' most sought after picks? Apparently if you have an AOL e-mail address, you will be a prime target for everything under the sun.

>A study in Cleveland has found that bad news often travels fastest by e-mail. Higher-ups in corporations are performing reprimands, and worse, over e-mail because they find it easier than facing the person. I'm sure this is true. A good friend of mind told me the story of a co-worker who knew he was going to get fired so he brought his kid in that day. The boss had to do the deed with the employee's child in the room. I don't know if that was necessarily good for the kid, but it sure made the boss sweat.

>WebTV users will soon have RealAudio and RealVideo access! Good for them. I think that's great news.

Now onto today's topic...

It was only a matter of time before the hardware became cheap enough to no longer play a part in the decision to buy an Internet account.

Do you remember when a hand-held calculator was $80? I bought one when I first went off to college. It was a Texas Instruments T-something and it was maybe 50 bucks. Now you can get a calculator, with a square root key, in a dollar pack of bubble gum (true)!

Remember when cellular phones were hundreds of dollars? Now you get one free when you purchase access to cellular service. The same is true with a lot of beepers. You pay for the service, you get the beeper for free. Now, usually you have to give it back at the end of the contract and the contract itself must last a series of years, but you still get the hardware for free.

Hey, business majors... want to see supply and demand in action? This is it. When technology is new, there isn't a lot of product, so the price stays high. When other manufacturers get into the fold and the market starts flooding with product, the price comes down. Often, as in the case of cellular phones, the price comes down to the point that the hardware is no longer a profit-making entity in itself. It's easier to simply give you the thing and make the money off of the service.

Well, it's coming to the Web. I remember in the very early '90s this idea was kicked around a good bit. Some smaller computer manufacturers were discussing creating a "black box" that would only connect to the Web, only surf, and only retrieve and send e-mail. I thought it was a good idea. It would be low-price and anyone could afford it. Anyone with a grand to drop, that is. It didn't fly.

Now it's flying.

America Online (AOL) has announced a deal where, if you sign up for a three-year membership to their Compuserve 2000 (an upgraded version of their current service), you'll receive a $400 rebate check good for a computer from low-cost manufacturer eMachines. Now some of you might say that that doesn't mean a free machine. Ah, but it does. The low-end eMachine is only $399. I don't know that that low-end model will allow for applets and huge JavaScripts, but it will allow text-based surfing and e-mail. For some, that's all they really need.

But how? Where will anyone make any money? Let's do the math. You can purchase the AOL/Compuserve 2000 package for $19.95 a month for unlimited access. There are other plans, but something tells me this is the pup you'll be signing up for.

Three years times twelve months is 36 months at $19.95 equals a total investment of $718.20. Take away the $400 rebate and that is a profit of $318.20. You business people will also take into account that if the consumer is buying the computer at $399, it certainly costs much less to build it. Profit is how companies stay in business.

Will there be additional things you can buy? Sure! Will there be additional services you can attain? Sure. But even if you don't take anything else other than the three years service and cheapest computer, AOL/Compuserve will make a small profit through the retail/wholesale conversion. eMachines will make out better in the deal because they're also receiving investment monies in return for installing AOL and Compuserve software on all of their machines.

No, it doesn't seem like much at the moment, but remember, this is the first time this has been tried (that I know of). We're only watching the barrier being broken. If eMachines makes a bundle off of this deal, you business majors will once again see supply and demand in action. Major companies will start to jump into the fold and a slew of $399 machines will flood in. Then price wars will begin. Consumer costs will plummet and soon everyone and their uncle who owns an Internet Service Provider will be offering free machines with extended Internet access contracts.

I see this as a good thing. Many will see it as a concern as it will slow lines and slow sites as more and more people come in to surf. I don't think that'll be the case. The people who offer services are in this for the long haul. They will either add machines, upgrade machines, or die. I think you'll see upgrades.

There is a reason a lot of people are not on the Web. I know. I teach these people every day. They feel it's just too hard to understand. The technology keeps them at arm's length. There is also a reason AOL is so darn huge. They are winning the "I understand it" game. It's easy. There's a reason the iMAC is so popular. Take it out of the box, plug it in, and you're on. (It's not quite that easy, but you get the idea).

Look out for the server/free-machine deals that offer everything installed, including the user's name and all their passwords. When a deal is set up so that my mother can buy an account, get a computer with literally everything preloaded, including all the phone numbers, her friend's e-mail addresses, and all the passwords she'll need to pull it out of the box, plug it in and go -- that company will grab a very large, and rather rich, older audience.

The company that takes the time to do that will be the one in which to invest your money.


And that's that. Thanks for reading. You know, I got so much e-mail from people saying they jump to the end of the Newsletter each week just to read the "And Remember" fact first. That's great. Hopefully I can keep coming up with things that are so bizarre you'll keep jumping.

Joe Burns, Ph.D.

And Remember: Here's one from the "picky, picky, picky" file. "Lizzie Bordon took an ax, and gave her mother 40 whacks." Right? Wrong. It was her stepmother. Told you it was picky.

If you thought that one was silly, here's another: Crickets set their chirping speed according to their surroundings. Count the number of chirps from a single cricket in 15 seconds and add 40. You'll be within two degrees of the temperature.

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