Subsidised PCs and the e-economy

The days of traipsing up and down Tottenham Court Road to buy a cheap PC may soon be a thing of the past if the US trend of companies providing staff with subsidised PCs shifts over the pond.

But despite the fact that computer companies seem to be practically giving their machines away, many of them seem to be scrambling for a piece of the pie. The latest evidence of this was last week's $150m investment by Gateway in the Consumer Financial Network (CFN).

CFN is a subsidiary of web consulting firm, iXL, and creates corporate portals dealing with financial services and employee benefits. Under the terms of the agreement, Gateway and CFN will market PCs and services, including internet access and financing, to companies that want to provide IT products and services for their personnel.

The Gateway/CFN deal also hopes to exploit a growing market. Analysts suggest that the corporate portal and services sector will be worth $14bn by 2002, and Gateway itself was the first US company to provide its staff with a comprehensive programme of subsidised PCs and services.

Delta Airways and Ford Motors followed suit in February this year by announcing that they would also provide their employees with subsidised IT offerings. Both signed up PeoplePC to handle the deal, with Delta's staff receiving a PC and internet access courtesy of AT&T for $12 per month, while Ford's employees received a Hewlett-Packard PC and printer and internet access from UUNet for $5 per month. The former sum amounts to about half the price it would cost a member of the general public for the same deal.

But is there really such a thing as a free lunch and given the already incredibly low margins on PC sales, the question is what is in it for the vendors?

PeoplePC, for example, earns a share of the sale or a fee from one of its partner shops such as Gap or Amazon.com every time one of Delta or Ford's employees buys something.

And Gateway appears to have picked up the message, recognising that access to consumers themselves could turn out to be more lucrative than simply selling them a machine. Gateway's net profit for its first fiscal quarter rose by 37 per cent and analysts argue that this increase is due to higher profit margins in areas of its business other than PC manufacturing.

But the Gateway deal is instructive for other reasons. A recent Organisation of Economic Co-operation and Development report, for one, declares that the European IT economy has been over-hyped. So is this another example of the Americans stealing a march?

The information gap
Sceptics of the e-economy have pointed to a growing information gap between those with the technology and expertise to make the most of the phenomena and the 'information poor' who have neither the skills nor the access to such technology.

But Simon Moores, an analyst at the Research Group, believes the UK should take heed of strategies such as Delta and Ford's. "In the US, there is significant interest from large companies in educating the workforce in the internet as an invaluable asset and an important part of the work process. It makes a lot of sense to be able to subsidise now that the costs are coming down. Your employees can not only surf at home, but work at home."

But it was the very idea of working at home that was a source of concern for some in the Delta scenario. The US airline industry in the 1980s became synonymous with confrontational industrial relations. The mutual suspicion aroused by this history is still visible in the reaction of the big US labour organisation, AFL-CIO, which expressed concern that the deal took place during one of its drives to unionise workers.

It is likely, however, that the big companies have recognised that providing staff with cheap PCs could be a gentle way of introducing the concept of telecommuting in future. But as Moores points out, at least US workers are being given the tools and the access to new technology.

At face value at least, it seems like a win-win scenario for everyone. Those providing the services make money, companies earn good will and skilled employees, and the staff themselves get cheap PCs.

So what is the likelihood of such schemes appearing in the UK? According to Moores, despite the government's efforts to make the UK the best place in the world to do ecommerce by 2002, the country is not really geared up for this kind of deal.

"I know a number of companies, without naming names, that are deciding whether to experiment with this in the UK. The problem historically in this country is that the moment you give an employee a mobile phone or a PC, for example, it immediately has a benefit in kind slapped upon it," Moores said.

"Given that the Chancellor has got £22bn from mobile phone auctions, he's going to be giving some of it back to education or to the health service. I would love to see certain elements of the government stand up and say for the first time, we will encourage business to do this," he added.

Playing catch-up
Apart from the economic benefit to the country, Moores believes that, given the current controversy surrounding education, the government would benefit from encouraging such schemes. But there are also other reasons that indicate the government might do well to pay attention.

Despite the constant talk that Europe is lagging behind the US in technology terms, European countries, other than the UK, have been on the subsidised PC case for a couple of years. An IDC report on European prospects for the PC industry this year suggests that in countries such as Denmark, there is almost 100 per cent market saturation, while Swedish PC sellers should probably just go on extended leave.

"Since the second half of 1997, there has been a strong movement in the Nordic region and in Benelux countries towards companies providing PCs for their employees - or organisations to their members - for use at home," the report says.

It argues that companies involved hope to introduce more flexible working hours as a result and also enhance organisations' images in the eyes of staff and the general public. One company at the cutting edge of this type of initiative expects a return on investment within 18 months.

So, given the advantages and possibilities offered by the subsidised PC phenomenon, the UK government would do well learn a lesson or two from the US and Scandinavian experience if it wants to promote this country as a major player in the ebusiness space.

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