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Compaq slashes iPaq's price tag

A massive price cut for Compaq Computer's Web-surfing appliances represents the slow leak in a once-inflated device category that many industry watchers believed would outsell PCs.

A massive price cut for Compaq Computer's Web-surfing appliances represents the slow leak in a once-inflated device category that many industry watchers believed would outsell PCs.

Compaq Computer announced Tuesday a US$200 cut in its line of iPaq appliances for surfing the Web. With the reduction, the two models now sell for US$399 and US$299. The devices will also come with six months of free MSN Companion service, which normally costs US$21.95 per month. MSN Companion is the Internet access and e-mail service for Internet appliances. The deal kicks in Sunday.

Compaq and Microsoft will likely still make money on the products, IDC analyst Bryan Ma said, but the price cut represents the latest blow to Web-surfing terminals that mimic PCs.

Compaq spokesman David Albritton acknowledged that the Web terminal market has not taken off as expected but that the company hopes to jumpstart a market it still believes in.

"We've learned our lessons, and we're trying to increase the appeal for this young category that we still believe is a viable one," Albritton said. He would not disclose how many iPaqs have been sold or how many the company expects to ship this year.

The iPaq line was launched less than a year ago. But this is already the second time Compaq has dropped the price.

Albritton added that the new MSN Companion promotion replaces the previous US$400 rebate on the iPaq with a 36-month commitment to the service. However, with that rebate and another from Compaq, the cheaper iPaq model was essentially free and the more expensive one cost only US$99.

Compaq and others, such as Netpliance and 3Com, entered the Net appliance market early on in hopes of catching a rising wave of interest, but consumers did not respond. Netpliance decided last fall to stop making the I-opener, and 3Com discontinued its Audrey earlier this year.

According to IDC data, 150,000 Web-surfing terminals shipped last year in the United States. Ma noted that part of the reason for the lack of consumer enthusiasm comes from a lack of awareness.

"It wasn't explained to consumers why these devices were any better than PCs, which cost about the same and allowed them to do so much more," Ma said.

Despite resembling PCs, Web terminals are much more limited in capabilities and lack a hard drive. They are meant solely for surfing the Web and handling e-mail.

The lack of success doesn't mean everyone has given up on them, though. Consumer electronics giant Sony is expected to launch its US$500 eVilla device in mid-June, following two delays.

Meanwhile, the forecast for the wider Internet appliance category is not as gloomy as that for Web terminals. Although Web terminals have not caught on, Ma said, other Internet appliances such as game consoles, interactive TV set-top boxes and handheld computers will likely drive growth of the market.

IDC recently lowered its shipment projections for Web terminals from 5.5 million for 2004 to 2.7 million for 2005. However, in a report slated for release Monday, the market researcher will announce that its shipment projections for Internet appliances--excluding Web terminals--will nearly double from 89 million in 2004 to 170 million in 2005.

Microsoft also announced Tuesday the availability of version 2.0 of its MSN Companion service, which new iPaq buyers will receive and old iPaq owners can upgrade to for free. New features of MSN Companion include support for broadband access and the ability to have up to nine individual accounts on the same device.