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Analysis: What happened to Net appliances?

PC World

(IDG) -- Once heralded as potential PC killers, Internet appliances today are dropping faster than pet-supply dot-coms. They're bombing for some simple reasons, say analysts: They're based on several faulty concepts, most notably their function.

The main purpose of most Internet appliances today remains frustratingly unclear, says Milosz Skrzypczak, an analyst with the Yankee Group who recently penned a brief on the trouble with Internet appliances.

Are they supposed to be Web browsers, e-mail stations, or something else? And, he asks, if an appliance is supposed to do many of the things that a PC can do but it doesn't do them as well, where is the appeal? INFOCENTER
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And then there's the price. Most appliances sell in the range of $500 or more. If it's supposed to appeal to new users who don't want a PC, it's too expensive, he says. And if it's supposed to be a "companion" product to an existing PC, then it's much too expensive.

Rob Enderle, a research fellow at Giga Information Group, puts the failings of Internet appliances even more succinctly. "There was simply no proof the market wanted this," he says. "[Vendors] failed to place the customer in the mix."

The rise and demise of Net appliances

As recently as last November's Comdex show, vendors were trotting out their Internet appliance visions of the future. Major vendors showed off new devices. Compaq unveiled its Compaq IPaq Home Internet Appliance, while Gateway showed the Connected Touch Pad, and 3Com heralded the Ergo family, including Audrey. Even the editors here at PC World seemed to think it was just a matter of time before the idea caught on.

But signs of problems were already appearing. Internet appliance pioneer Netpliance announced that same month it would stop selling its I-opener product. Later, Virgin announced it would suspend its Net appliance program just two months after launch.

Vendors should have known from the start these early products weren't going to fly, Enderle says.

"The technology wasn't ready for what people expected," he says. The LCD screens were too expensive to let vendors sell the products at more reasonable prices, and the back-end services weren't advanced enough to make simple Internet connections work the way people expected, he says.

"The whole thing was very poorly thought out," he says.

Live fast, die young?

The fallout has been fast. Today, while Compaq still offers its IPaq model, Gateway is "rethinking" its Internet appliance strategy. 3Com has killed its Internet appliance line, including the well-received Audrey. In the end, 3Com's rash decision surprised even the analysts.

"Audrey was one of the best implementations of what turned out to be a really bad idea," Enderle says. "It could be the poster child for this."

Yankee's Skrzypczak says that while he found Audrey's capabilities wanting--particularly its Web browsing--he was amazed 3Com killed the product so quickly. "I was quite surprised--it must have been bleeding money at an enormous rate," he says.

While he didn't expect the first version of Audrey to be a huge success, with only six months on the market the product never had a chance. But future versions of Audrey would have been better, and its focus could have become more refined, he says.

However, by eliminating its Internet appliance line, 3Com also put down a product that could have been a more immediate success, he says. That product was the Kerbango Internet Radio.

Future is in single-use devices

The Kerbango product, developed by a company that 3Com acquired, was a good one, Skrzypczak says.

"Its sole purpose was to play Internet radio," he says. That type of product could work--you could see that at Best Buy, he says. Why? Because when somebody asks what it does, you say it plays music. And they understand that and they want it, he says.

"People will spend money if the purpose is clear," he says. It's the same reason Palm-based handhelds have found success--while they do many other tasks, their main purpose is as a calendar, and people want that, he says.

That's likely the future of Internet appliances, Skrzypczak says. They should be single-purpose products that are easy to use, connected, and relatively inexpensive. Handheld MP3 players are a logical extension of that model, he says. If you could connect your MP3 player to an Internet service and download songs for a small fee, you'd be interested. Same goes for an Internet-ready digital camera that would let you move your photos over the Web without a PC, he says.

For any of those devices to work well, however, people will want bigger pipes to the Internet, Skrzypczak says. "I don't see a successful appliance appearing before there is a sizable increase in broadband and networked homes," he says.

As a best-case scenario, he expects a resurgence of single-purpose Internet appliances sometime around 2003. By that time broadband will be more widespread, and "things will get more interesting."

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Giga Information Group
Yankee Group

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4:30pm ET, 4/16

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