(IDG) -- Compaq Computer is breaking new ground with its Presario 2266, a razor-and-razor-blades offer that demonstrates just how important the Internet has become. The world's number-one PC vendor has dubbed its new desktop the Internet PC, equipped it with a 300-MHz Cyrix M II, and given it a $699 price tag that establishes a new low for home PCs with its feature set.

Not just a way to clear out old parts inventory like bargain-basement PCs were in years past, the Presario 2266 has a 512KB of second-level cache boosting its fast processor, 64MB of RAM, a 4GB hard drive, a 32X CD-ROM drive (which can be substituted by a DVD drive), and a 56-kbps V.90 modem. It lacks a monitor, but a Compaq MV700 17-inch monitor can be had for $399, and smaller monitors can be had for less.

The Presario 2266 offers more room to grow than cheap PCs of even a few months ago. Its memory is expandable to 256MB and it has an open PCI slot, an open externally accessible hard drive bay, and two USB ports. The Presario 2266 also has something Apple Computer's new iMac doesn't: a built-in floppy drive. Zip and Superdisk drives are available as options.

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"If you were to get a bill of materials and try to assemble this from parts, I can tell you that it would cost you more than $699," says Zona Research Vice President Greg Blatnik.

Taking a hint from Gillette

You get to $699 by way of a $100 manufacturer's rebate available only if you agree to sign up for 50 hours of Compaq Easy Internet Access using GTE as your ISP. There's the hook, right?

Well... sort of. Those 50 hours are free. After that, you can continue for the usual $19.95 per month for unlimited access. In fact, this $100 gift is available with the purchase of any Compaq home PC.

Compaq can still make money at these prices, says Blatnik, but more important, it's looking for revenue from Internet ad and e-commerce sales over the long run.

"Compaq would rather get you hooked on their services and get you to be a customer for life--or, at least, for several years--than sell you a cheap box; and I think the trend is clearly in that direction among PC vendors," says Blatnik. "I think the access device is clearly becoming like the razor designed to sell the blades, which are [what] they want you to pay for."

First look

The Presario 2266 makes dialing up the Internet easier still with a keyboard that includes four dedicated keys for your favorite Internet connections -- say, a portal, Web searches, e-mail, and electronic shopping -- as well as a quick-launch button for your favorite desktop application and multimedia controls for playback of CD-ROM or DVD discs.

We tried the Presario 2266 and found a wizard that simplifies the configuration of these keys. You simply select a key and browse an Explorer-like directory for the application or Web address to associate with it. After that, it's one-click access.

The PC comes bundled with a mind-numbing array of software and options to configure before you get going. Funny, but not even a 300-MHz processor can make the supposedly quick-launching Windows 98 boot up quickly. The Presario 2266 did have plenty of zip once we got past the nested arrays of automatically launched dialogs that get foisted on you as part of getting right with Windows and the Internet these days.

The Internet PC is available only from retail stores. You can, however, check out its specifications in Compaq's Product Showroom on the Web.

Another goal of the Presario 2266 is to stem the tide of success that the Internet-focused iMac and HP 6330 from Hewlett-Packard have enjoyed in recent months.

"Not to be overly dramatic about it, but I do think this machine sets a fairly serious milestone in sales of PCs to the home user or even a small business user," says Blatnik. "If Apple's alternative is iMac, the Compaq machine is clearly more attractive in terms of price and has all the other arguments of Wintel architecture going for it."