Will the Web win appeal world wide?

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Oracle, Bandai hoping to create mass demand for cheap, easy Net appliances

Oracle Corp. Chairman Larry Ellison bets sales of his new-fangled Internet appliance could go above 100 million machines annually by the year 2000, surpassing annual sales of the personal computer.

Mr. Ellison is prone to, uh, hyperbole. Many observers think the product will flop.

But on the thesis that there is a market for anything if properly positioned, Advertising Age scoped out ideas from both optimists and skeptics on how best to turn the overhyped "$500 computer" into a viable consumer product.

Two-thirds of U.S. households don't have PCs, with signs home PC growth is tapping out. Only 8% of households are on the Net. What the masses are waiting for, optimists say, is a cheap way to join the Internet revolution.

Marketers should remember the ghost of Newton: There was no way Apple Computer's first personal communicator could live up to then-Apple Chairman John Sculley's hype in 1993, and the result was a marketing debacle that paralyzed that market.

"I think the biggest lesson is to be clear about what's available today as opposed to what's coming tomorrow," says Frank O'Mahony, former PR manager on Newton and now technology consultant with Liffey Communications, Palo Alto, Calif.

WHAT THE PRODUCT DOES

If this is a product to die for, what is the killer app?

Bandai Digital Entertainment, an arm of the Japanese toy giant behind Power Rangers, in May will unveil Pippin, a device developed with Apple that looks like a videogame machine, offers Internet access and CD-ROM and plugs into a TV.

Bandai will back the box with a $10 million campaign from J. Walter Thompson, Chicago. JWT Management Director Brian Goldner thinks the masses already are sold that the Internet itself is worth jumping on.

"We are providing a product to the vast majority of consumers who have heard of the Internet but haven't gotten on yet," Mr. Goldner says. Bandai will sell parents on Pippin's educational benefits accessible through the Net while pitching kids on games.

Bandai will face a serious challenge from videogame marketers that are beginning to add Internet access.

Nintendo of America is talking with Netscape Communications Corp. about building Net access into Nintendo 64, a new machine set for September release. Bandai's Pippin is a stripped down Macintosh, but the model is consumer electronics rather than computers.

WHAT THE PRODUCT IS CALLED

"We are trying to bring a very strategic packaged goods orientation," says Mr. Goldner, who's spent years on accounts like Procter & Gamble and Kellogg.

Videogame marketers, too, are unlikely to attach "computer" to their Internet-ready machines.

The computer industry, not surprisingly, sees value in calling new Net devices computers. Mr. Ellison trademarked "Network Computer," hoping to license the name and technology to computer and consumer electronics sellers.

THE CUSTOMERS

Marketers may be better off targeting devices to experienced PC users who understand the Web and are looking for additional ways to access it, says Eric Heneghan, multimedia director at Giant Step, the interactive arm of Leo Burnett Co., Chicago.

"I'm not sure the Web is ready for the mainstream," he says.

Al Ries, chairman of marketing firm Ries & Ries, Great Neck, N.Y., agrees that the 8% of households on the Web are the best initial prospects. "I would have no hesitancy in presenting this machine as the ultimate second machine," he says.

Others, though, think the two-thirds of households without PCs are the best candidates for a Net machine. More precisely, subsets of that two-thirds hold appeal: Cash-strapped young adults; affluent older consumers turned off by PCs' complexity.

Marketers must be careful. "The first people who buy any device are the nerds," says Mr. Ries. "If you introduce this as a machine for the great unwashed, you're going to turn off the nerds."

THE PRICE

Pippin goes on sale in Japan this month for about $650; Mr. Goldner says U.S. cost will be closer to VCR than PC prices.

Mr. Ellison says his device could sell for $500, but he favors a model from the cellular phone industry where service providers will effectively give away equipment to gain subscribers.

That's a good way to build the market, but there's a question of who will make any money. Internet subscriber fees will fall as players like AT&T Corp. enter the market, reducing profit margins and leaving less room to sell subsidized access devices.

It's easier to sell a home PC than to make money on one. Carl Gustin, Eastman Kodak's senior VP-chief marketing officer and a veteran of Apple and Digital Equipment Corp., thinks Net machines could be the same sort of cut-throat, low-margin business. The place to be, Mr. Gustin speculates, is in content or services. Mr. Gustin admits the formula isn't clear since the content will reside out on a network. But he doubts the profits will be in the Net machine itself. "My first choice," he says, "would be not to market one."

Copyright March 1996 Crain Communications Inc.

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