DirectWeb Further Cuts Net Access Costs

SAN FRANCISCO (03/15/2000) - DirectWeb Inc., the New Jersey company that grabbed industry attention in January by offering customers three years of Internet access and a free IBM Corp. PC for just US$29.95 a month, now says it is further slashing prices to $24.95 a month.

"We encountered a tremendous response to our original offer, so we went back to IBM and we managed to get a better price overall for the deal," Brian Czarny, a DirectWeb spokesman, said today in a telephone interview.

Under the latest offer, customers will receive Internet access, a 450MHz IBM Aptiva PC with a 15-inch monitor, and three years of IBM's On Call Service.

An enhanced service offers customers Internet access, the IBM PC, support, a 17-inch monitor and a Hewlett-Packard Co. color printer for $34.95 a month, down from $39.95 a month, as offered in January.

Analysts have tracked the "free PC" sales model with interest since several companies last year tried a variety of takes on the model with differing amounts of success.

While some companies, such as FreePC Inc. are no longer operating, others, like PeoplePC Inc., continue to offer a PC and Internet access for three years for $24.95 a month. Large companies like America Online Inc. (AOL) offer a $400 rebate on a PC in exchange for Internet subscription.

"DirectWeb is banking on using its buying power to win lower prices," Czarny said. "We're acting like a shopping club, aggregating customer buying power and helping them get better deals."

The company has said it makes money by selling subscriptions, referrals and annuities based on customer links to electronic transactions. Czarny declined to release DirectWeb sales figures. IBM could not be reached for comment.

Today's announcement raised the eyebrows of one analyst, who said the so-called "free PC" sales model can be a challenging way to make money, even without extra price slashing.

"They are right on the hairy edge there (with the new price cuts)," said Roger Kay, an analyst with International Data Corp. (IDC). "They are basically bundling eyeballs and there is a question whether they will ever get the money back on the back end," he added.

"Some of the larger players, like PeoplePC and AOL, might pull it off," Kay said. "They can hang around long enough to make it work."

DirectWeb, in Mount Laurel, New Jersey, can be reached at +1-888-929-2932, or at http://www.directweb.com/.

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