The downside to Netpliance's upgrade

The information appliance leader attempts to stave off competition with new services, but analysts say the price is too high
Written by Richard Shim, Contributor

There's no question among analysts and technophiles that the information appliance market has a lot of potential. Ask them how to tap that market and the answers dry up.

Netpliance, which signed up 22,000 subscribers in its first four months of operation, has been the most successful.

Last week, the company announced a change in strategy. Some analysts are calling it a big mistake.

Netpliance will boost its price from the previous promotional price of $99 to $399 (£65 to £264)with its new membership kit. Called "I-Opener 2001," it includes an Internet terminal -- equipped with a keyboard, mouse and 10-inch LCD -- plus instant news channels, iChime direct messaging, and two chat room applications, CommunityCenter and FamilyRoom.

"We'll see a massive cut off for demand because with this sort of device you have to have a low price," said analyst Matt Sargent of ARS. "Even $200 would be pushing it."

Sargent went on to say that a low price is essential, considering the target audience: low-income households or families looking for email machines to complement their PCs.

"Consumers aren't used to paying at these high price points, " said Andrea Leon, research director at GartnerGroup's e-commerce division.

International Data Corporation analyst Brian Ma agreed that the higher price would be a tough sell, although he said he was pleased by the greater range of services.

"This new kit emphasizes a sense of community, which Netpliance needs to get consumers to stick with them and not move to others," Ma said. For its community focus to succeed, however, Netpliance will have to build a broad base of users.

Analysts wonder how the company can raise prices and expect its market to grow, especially as the market becomes more crowded.

Industry heavyweights America Online, Compaq, Gateway, Intel and Microsoft recently announced Net appliance initiatives. And many of the new players already have in place the community that Netpliance is trying to grow.

IDC projects that 89 million information appliances will have shipped by 2004. Of that number, roughly 5.5 million units will be comparable to Netpliance's new I-Opener.

Business models are still emerging, however. The newest Netpliance competitors are expected by fall.

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