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The First One’s Free…

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Much speculation has emerged about Apple’s forthcoming foray into the nascent network computer (NC) market. Although NCs from Sun, Network Computer, Inc., and even IBM haven’t exactly sold like hotcakes, Apple’s entry promises to be the result of different thinking. Based on the eMate plastics and featuring a lean version of the Mac OS codenamed Cantata, Apple’s NC should offer the best of the Macintosh along with the network savvy of the other Java-based network computers.

But that’s not news, or rather, it’s only rumor and won’t be news until it ships. What’s more interesting is the rumor we’ve heard about how Apple plans to market and sell these new NCs. Current NCs have suffered from two problems – they’re just too expensive in comparison to the sub-$1,000 PCs on the market now, and they’re not functional enough thanks to their reliance on Java, which isn’t sufficiently mature to have an entire platform based on it. Apple plans to solve the functionality problem by using the Mac OS, which has years of testing and experience under the hood. Apple has ideas on how to address the price issue as well.

Apple has never managed to compete on price with the PC vendors because Macs aren’t made in sufficient quantities to provide the necessary volume pricing discounts. But what if Apple found a way to make a reasonable profit while selling NCs at prices people couldn’t ignore?

The model is right in front of us: the classic cellular phone pricing scheme. How else can the average consumer own a several-hundred-dollar piece of high-tech electronic equipment for free, or at least a mere fraction of the price? Apple’s looking to copy that scheme with the network computers, because after all, a network computer must be hooked to a network, and that network would be Apple’s revenue source.

Apple apparently plans to offer two basic pricing models, one aimed at individuals and the other at organizations. Although there’s been little talk of NCs for individuals so far, the fact that these NCs are based on the Mac OS and will have local storage means that an individual could easily purchase an Apple NC (which, remember, is based on the ultra-light eMate case) as a portable computing device with most, if not all, of the functionality of the Macintosh. Pricing might be as low as $199, provided the user commits to a year-long contract for network access at maybe $60 per month, which would include both full Internet access and access to applications via the network. Multiple forms of connectivity will be available, but Apple expects that ADSL-based connections will be the most useful for the necessarily high bandwidth communications; Apple would combine that with a new technology that allows Macintosh applications to transfer the image of an already-running program to the network computer, which should significantly reduce bandwidth demands.

I’ve also heard some talk of a deal with Metricom – producers of the wireless Ricochet modems. This deal would provide Apple NC users with a wireless modem that attaches smoothly to the eMate case and works transparently when the user disconnects from the primary wired network. Cellular modem access would also be available, though with hefty roaming charges.


What about businesses and schools? They won’t want to pay for individual connections to a service associated with Apple, so for them Apple has worked out a pricing plan founded on the fact that these NCs would need a Rhapsody-based server to function on the network. That server would supply applications (with a requisite number of licenses being purchased from the appropriate vendors, of course). The organization would have to purchase a sufficient number of licenses for the number of users the server must support, but in return, the NCs would be truly cheap, or even free.

Apple’s plan is a bold move. No other computer manufacturer has had the guts – or perhaps the desperation – to try such a tactic, but I think Apple realizes that it must build market share quickly and offer a machine that at least appears to have a low entry price. If a Mac was $200 but cost $60 per month and provided full Internet access, I’ll bet that Apple would have sold millions more to people who were curious but couldn’t justify the up-front cost of a full-fledged machine. Now Apple has the chance to put the Mac OS in front of millions more people with these NCs, and at the same time create a regular income stream that won’t suffer as much from the vagaries of the buying seasons.

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