FREE-PC GRABS EYEBALLS BUT PAYBACK UNCERTAIN

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Five days after it announced it would give away Compaq Computer Corp. PCs in exchange for delivering targeted advertising, Free-PC.com already had attracted more than 750,000 interested consumers -- but only one confirmed advertiser.

Funded by venture capital company Idealab Capital Partners, the Pasadena, Calif., start-up (www.free-pc.com) will offer free PCs, Internet access and e-mail accounts to consumers who agree to receive tailored advertising on their desktops.

Separately, USA Networks will invest $10 million in the company, which will ship 10,000 computers to approved applicants during a second-quarter test period.

Cybergold, Berkeley, Calif., will provide incentive-based ads.

UNTAPPED DEMOGRAPHIC

The model, evidently attractive to consumers, should attract advertisers eager to target a previously untapped demographic, said Steve Chadima, VP-marketing for Free-PC.

"This is a great opportunity for advertisers to reach people who don't currently go online or view online advertising," Mr. Chadima said. "The advertising will be on the desktop even if the user is not on the [Free-PC] Web site. It will facilitate highly targeted advertising. In many cases, [new users] will be people who hadn't been able to buy computers, but who do buy products."

Data from a questionnaire consumers complete when applying for a free computer will be used to send them targeted ads.

Not everyone, however, is convinced the model will pay off for Free-PC -- or for advertisers.

"Right now, $39 per capita is spent annually on online advertising," said Jim Nail, senior analyst at Forrester Research.

"A free PC is going to cost a couple hundred bucks. So . . . Free-PC is going to have to capture a disproportionately high share of ad dollars just to break even," Mr. Nail said.

He questioned whether Free-PC's customers will entice advertisers. The audience he expects "is people who can't afford to buy a computer. I don't think advertisers are going to be that interested."

More important, advertisers will want to assess customers' buying habits and computer use before they commit to anything, Mr. Nail said. Despite the huge response, that group of people "doesn't mean a whole lot to advertisers yet. But if they are kids just out of college or the elderly, that's a more interesting audience," he said.

COSTLY AUDIENCE NEEDS

Because the audience Free-PC attracts may have little or no computer experience, Free-PC also will have to provide free computer support. "That's going to run up Free-PC's costs, too," Mr. Nail said.

But Mr. Chadima said Compaq, experienced with first-time computer users, will provide computer support. The start-up is convinced of the viability of advertising-dependent products.

"People want computers," Mr. Chadima said. "People who already have computers will take another one. For advertisers, this is a way to open up the market to a group that is apparently untapped. This will allow everyone to be a part of online advertising -- not just the wealthy."

Free-PC will use database technology to target customers with appropriate ads in much the same way NetZero, another Idealab company, targets its customers. Westlake, Calif.-based NetZero, a free Internet service provider with an ad-supported model, is providing the free Internet access and

e-mail to Free-PC customers.

NetZero also had few confirmed advertisers on board when it launched last October. Now it has 45 advertisers and 300,000 users, said CEO Ron Burr. While not yet profitable, the service attracts advertisers and subscribers, he said.

AUREATE'S 30 MIL IMPRESSIONS

Another unrelated ad-supported model is Indianapolis-based Aureate Media Corp., which provides software users with free software in exchange for providing demographic data and viewing targeted ads contained in the software. In January Aureate delivered 30 million ad impressions to 600,000 customers.

That could bode well for Free-PC, now focused on "encouraging more advertiser

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