Why MicronPC.com Sells Subscriptions

In an industry famous for change, these are particularly volatile times. Old-school computer companies such as Compaq struggle to find retail profits as PC margins grow thin. Upstarts like eMachines rocket to the top of the retail sales charts by selling ultra-cheap systems, expecting e-profits later. Apple's back in town, Dell keeps growing, and the Internet is ubiquitous. How will it all shake out?

Yes, this is a major "inflection point in the PC business," says Joel Kocher, chairman of the board and chief executive officer of PC manufacturer Micron Electronics Inc.

It's also a turning point for his company. The plan: a new name, MicronPC.com; and a new focus on subscription computing, with an eye toward one day selling access to major applications via the Internet.

PCs on the Monthly Plan

MicronPC.com will still sell you a PC the old-fashioned way, but Kocher would rather sell you a subscription to one. With this model, the company markets systems, technical support, Internet access, Web hosting, and e-commerce tools.

Later, it will add access to applications online.

Instead of making money from selling hardware, MicronPC.com folds the cost of the PC into a single, monthly subscription fee along with the rest of the services.

The change is profound and necessary because "the basic fundamental computing model that's been in place for the last two decades is changing very rapidly," Kocher says. A PC maker can't just assemble a solid product, sell it, and move on. To succeed, it must offer the whole package, and MicronPC.com will do just that, he says.

"We're moving to more of a thin-client-oriented architecture where the Internet will serve as a pipe for applications, not only content," he says. In other words, in the near future you won't just use the Internet to read headlines and buy Christmas presents. At least at work, you'll likely use it to run everyday applications such as your word processor and spreadsheet.

I'll Be Your Host

MicronPC is on the right track, says Rob Enderle, vice president of desktops and mobile technology at Giga Information Group.

"The business market has wanted this for some time," he says of subscription computing. Consumers and small companies like the idea of paying one company for hardware, access, online applications, and related services.

But to succeed they must fend off the other companies as momentum grows, Enderle adds.

Kocher is aware of his firm's underdog role. For MicronPC.com to be a player, it needed to change more than just its name, Kocher says. He has redirected its focus from building high-end computers for a shrinking market of enthusiast buyers to creating an all-in-one package offering everything a small or medium-size business buyer could want.

First he tackled that in-house, by creating a new business-oriented sales force.

As the second step, MicronPC.com shopped for the expertise it needed for its new ventures.

In 1999, the company purchased several prominent Web-hosting businesses, including HostPro. MicronPC.com absorbed their personnel and expertise, and has become a hosting powerhouse. In number of customers, MicronPC.com is now the third-largest e-commerce hosting company in the United States, Kocher says.

MicronPC.com's New Role Brings New Revenues After years in the hardware business, Kocher says he was amazed at the hefty revenues a Web-hosting business can generate.

The profit margins in Web hosting are five to eight times that of the hardware business, he says. Plus, they're recurring "so you have a lot of customer stickiness and you have the opportunity to even cross sell more capabilities," he says.

But MicronPC.com faces challenges on its new turf, analyst Enderle warns.

Larger firms like Dell and Compaq are partnering to provide access and subscription services.

It's a strength that MicronPC.com is the only PC company to offer this kind of package itself rather than through partnerships, Kocher says. "We intend to use these properties and these capabilities as a platform to launch ourselves very aggressively into the applications hosting area," he says.

MicronPC.com has a slight lead, but Dell, which has been selling online longer, can buy its way in very quickly, Enderle observes.

"It's going to be a race," Enderle notes.

Make It Simpler for the Masses

Kocher says he knew Web-hosted applications were the future when he watched someone access Intuit's tax software, for a fee, over the Internet.

"Now, for a lot of users that was a pretty big deal," he says, because it's so much easier to do. And it makes even more sense for a small business, with no in-house technical support, to go to the Web for all of its applications.

"I'm maintaining your server. I'm maintaining your software. I'm maintaining the latest version of Word. If you have a problem, I'm taking care of it. It's in my data center, secure around the clock," he says.

The major software vendors will get on board, he says. "We're looking at a scenario where Microsoft applications, PeopleSoft applications, and Great Plains applications will be served via the Internet to the ultimate end user."

In November, MicronPC.com was on a short list of companies Microsoft tapped to deliver Microsoft Office 2000 online.

Battle of Bandwidth

Of course, one little hurdle remains before everyone starts accessing major applications this way: bandwidth. Imagine the pain and suffering of working in Word through a 56 kilobits-per-second connection.

Kocher admits that bandwidth is a problem for some customers today. But it won't be for long, as more broadband solutions appear. "It's being solved," he says. "And this computing model that I'm talking about isn't going to change in 360 days. It's going to take three to five years to happen."

MicronPC.com will be a pioneer in the field, because the company is "on the early cusp of it," he says. "We're setting the tone and it's just going to take some time for the rest of the world to recognize that this is the way to go."

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