| Lesson 6
| e-Business architecture
| The free PC model (an adaptation of the storefront model)
Free PC Model: Adaptation of Storefront Model during the dotcom era
Question: During the dotcom era, did the free PC model serve as an adaptation of the storefront model in ebusiness?
Answer: The free PC model that emerged during the dotcom era can be viewed as a unique adaptation of the storefront model in e-business. This model was an innovative, albeit short-lived, business strategy that attempted to capitalize on the booming internet economy and rapidly increasing online advertising revenues.
The free PC model, also known as the 'subsidized PC model', was premised on offering consumers personal computers at drastically reduced prices or even for free. The companies behind this approach would recover their costs and aim for profit by tying consumers into long-term internet service contracts,
or by relying on the income generated through advertising and e-commerce transactions made from these 'subsidized' devices.
This model represented a considerable departure from the traditional storefront model. Instead of directly selling products at a profit, companies were essentially offering a platform (the free PC) to drive online traffic and boost revenues from secondary sources, mainly online advertising and e-commerce sales.
The free PC model allowed e-businesses to create an immersive storefront. Consumers would access the internet, shop, and consume digital content through these subsidized PCs. The model was a reflection of an era when the internet was transitioning into a mainstream platform for commerce, and companies were experimenting with various strategies to capitalize on its potential.
However, despite its initial hype, the free PC model proved to be unsustainable in the long run. Many of these companies overestimated the potential profits from advertising and e-commerce, and failed to account for the logistical challenges and costs associated with distributing and supporting the PCs. Moreover, the market was flooded with cheap PCs from established manufacturers, making the free PC less attractive. The collapse of the dotcom bubble in the early 2000s further undermined the viability of this model.
Yet, while the free PC model was largely a failure, it was a significant early attempt to reimagine the storefront model in the context of e-business. It demonstrated the potential of using hardware as a platform to drive digital advertising and e-commerce, a strategy that has been effectively implemented by today's tech giants in the form of smartphones, tablets, and other devices. So, even though the free PC model was short-lived, its legacy can still be observed in contemporary digital business strategies.
List the features of the free PC business model.
We often wonder, "is it possible to get anything for free in this day and age?" The answer to this question is YES! An emerging business model allows consumers to receive a free personal computer (an amazing feat, considering some gas stations actually charge consumers to add air to their tires). While this business model is in its infancy, it has gained a lot of attention because it does what we never before thought possible. It gives users a free, or extremely discounted, computer. There are two variations of the free PC business model. We will call them free PC with Internet and free PC because of the Internet.
Free PC with Internet
The earliest model, free PC with Internet, provided users with both a free PC and free Internet access. Customers signed
contracts allowing targeted advertising messages to be delivered directly to the user's desktop. In this model,
merchants pay to reach the consumer, and thus, subsidize the cost of the PC.
What type of interface accompanies a typical Free PC with Internet system.
Changing Interests of Investing Firms
Beginning in the mid-1990s, numerous investors eagerly sought electronic commerce ventures and were especially interested in funding B2C start-ups. The prospect of potentially reaching any consumer around the world without the cost of setting up physical shops seemed to hold unlimited profit potential. In fact, for a short period of time it seemed that the ultimate goal was to find and fund purely virtual companies, or companies completely independent of physical constraints.
One of the first successful virtual companies is Tucows
Scott Swedorski started Tucows in 1993. Mr. Swedorski developed a website and posted software patches as freeware. The website became
so successful among software developers that advertisers rushed to place banner advertisements on the website.
It is interesting to note that not only is Tucows one of the first successful virtual companies, it is also one of a very few companies that successfully used banner advertising as a sustainable business model. Indeed, Tucows is the exception, not the norm.
Mr. Swedorski recognized a unique market need and fulfilled it using Google Adsense.
In contrast, many new e-business start-ups have been driven more by a desire to identify new Internet markets
rather than by an existing need. That is one valuable lesson from the Tucows example. Another lesson is that Tucows
did not need venture capital funding because the company grew as a result of meeting a need in a new way. There is
much less risk all around if an entrepreneur with a good idea can start small and grow the business slowly. Entrepreneurs
who want to start big usually require venture capital. Invariably, this means that entrepreneurs will relinquish
control of company management. It also means that overall the financial stakes are higher.
Free PC because of the Internet
The latest version of the model, free PC because of the Internet, involves ISPs (Internet service providers) and retailers. In exchange for this rebate, consumers must sign a long-term agreement (typically 3 years) with an ISP.
This provides the ISP with a captive and a long-term consumer base.
Problems with free PC land?
The promise of a free computer has drawn many consumers into contracts that are not necessarily great deals.
Often these offers are tied to very long-term commitments. In other words, a consumer might have to agree to a three-year
commitment to pay for Internet services from a company in order to accept the "free" PC.
Of particular concern to some attorneys is contract structure. Most free PC contracts span up to three years and
typically require the customer to use the advertising-laden ISP that comes with the computer for up to 10 hours per
month. Some firms, such as FreeMac.com, charge for the ISP. Others, including the Idealab-incubated Free-PC, warn that
dial-up access numbers could carry a toll charge. In other words, the PC is not truly free. Government officials, as
well as consumer watchdog groups, want to make sure consumers are aware of this. At least two states (Florida and New
York) have begun probes into the legality of these contracts. Additionally, the Federal Trade Commission and Better
Business Bureau reportedly have begun monitoring these companies. The free lunch may be nearing an end.
There werel problems with the FreePC model, and for this reason it is no longer being offered today.