FREE PCS! REBATES AIMED AT GETTING MORE HOMES ONLINE.

Byline: Jason Takenouchi Staff Writer

Coming now: the free personal computer.

With computer prices falling and competition rising for services such as Internet access and Internet search functions, companies are flocking to give consumers free computers in exchange for long-term Internet service contracts.

In recent days, Internet giants such as America Online Inc., Microsoft Corp.'s MSN Internet Access and Prodigy Communications Corp. have flooded the market with offers that rebate buyers as much as $400 on computer purchases.

On cheaper machines being offered by companies such as Irvine-based eMachines Inc., a $400 rebate makes a computer effectively free. The offers do not include monitors and other peripheral devices.

The trend - similar to free phone offers by cellular phone companies - calls into question old assumptions about personal computers, said Greg Blatnik, an analyst with Zona Research in Redwood City.

``The way some companies are thinking of the PC is as a way to sell you Internet access,'' he said.

Prodigy is the latest company to jump onto the free PC bandwagon with an offer, beginning today, that gives consumers a $400 rebate on computers purchased at Best Buy if they sign up for three years of Prodigy Internet service at $19.95 a month, or $718.20 over the life of the contract.

America Online launched two similar offers Thursday tied to eMachines and to computers purchased at Circuit City, and Microsoft's MSN began a test offer this week at Staples stores across the country.

MSN also has a $400 subsidy offer for some computers sold at Micro Center, a Columbus, Ohio-based retailer. The offer was initiated in April.

Most offers require three-year contract commitments but include smaller rebates for shorter contracts.

Analysts say there are several motivations behind the spate of rebate deals.

By locking customers into long-term contracts, Internet providers can address the problem of customers who switch back and forth among providers.

That turnover, or ``churn,'' is a problem because it costs Internet providers $100 or more in marketing to capture each new customer.

``For them it's a great deal because they have a high rate of churn,'' said Steve Chadima, vice president of marketing for Free-PC Inc., the Pasadena company that offers free computers in exchange for marketing data on customers and their online habits.

``I think they are realizing that unless they make moves like this, they are going to slowly lose their customer base,'' he said.

And the deals are not money-losing propositions for the Internet providers, analysts say.

``They've already got the economics worked out,'' said Bruce Kasrel, senior analyst with Forrester Research in Massachusetts. ``If someone signs up for this program, AOL's going to make money.''

Offering free or nearly free PCs also could open the market to the thousands of Americans without computers. According to Juniper Communications, a New York-based research firm, only 52.5 percent of American households had computers in 1998.

``It makes it very attractive for people who have not purchased PCs before,'' said Pattie Adams, spokeswoman for eMachines. ``It really works at the low price points.''

The rebates tap into a trend in the market that has most new users buying computers for Internet access, not traditional uses such as word processing.

``Access to whatever is available on the Internet has taken the primacy away from so-called personal computing,'' said Blatnik of Zona Research.

Another kind of change is playing a role in the computer rebate frenzy.

Analysts say that if current trends hold, Internet providers eventually might make more money from advertising and their cut of online sales, or e-commerce, than they do from monthly access fees.

``That's basically the bet we're placing,'' said Mike Lucero, group product manager for MSN Internet Access. ``We're going to end up profiting off the access, but our bet on the upside is on the portal revenues.''

Control of the ``portal'' that brings users into the Internet is also an important consideration for new users who have not yet formed online habits, he said.

``We think people are going to get used to using our portal by beginning their Internet experience with that portal,'' Lucero said.

DEAL IN A BOX

Here's some of the deals being offered by online services, personal computer makers and retailers:

ONLINE SERVICE RETAILER DEAL x

America Online eMachine $400 off any eMachine if consumer agrees to three-year, $21.95-a-month America Online or CompuServe Internet access. Deal will end Jan. 1.

CompuServe xx Circuit City $400 off any computer if consumer agrees to three-year, $21.95-a-month CompuServe Internet access. Deal will end Jan. 1.

Prodigy Best Buy $400 off any computer if consumer agrees to three-year, $19.95-a-month Prodigy Internet access.

MSN Internet Staples $400 off any computer if consumer agrees to three-year, $19.95-a-month MSN Internet access. Deal will end Saturday.

x Monitors typically aren't included in the price of the computer. Lower rebates are offered in most cases for fewer years of service.

xx Owned by America Online.

SOURCE: Daily News research

CAPTION(S):

Box

Box: DEAL IN A BOX (See text)