PIPPIN OFFERS NET HOOKUP : APPLE WILL TAKE BITE OF PRODUCT'S PROFITS.

Byline: Mike Langberg Knight-Ridder Tribune News Wire

A young Japanese woman is perched on the toilet, clutching what looks like a video game controller in her hand and looking amazed.

``The Internet gives you an easy and comfortable connection to the people of the world,'' reads the caption beneath this photograph of privacy interrupted.

Welcome to the future of cyberspace, courtesy of Apple Computer Inc. and Bandai Co. Ltd.

Bandai, a toy company best known in the United States for its Mighty Morphin Power Rangers action figures, introduced a $648 device in Japan in March called the ``Pippin Atmark.''

Pippin, designed at Apple headquarters in Cupertino, Calif., and licensed to Bandai, could qualify as the world's first ``network computer'' - the much-hyped concept of a relatively inexpensive appliance that easily connects users to cyberspace.

Pippin is basically a CD-ROM player that attaches to a television set and comes with a modem attachment. Bandai is heavily promoting it in Japan as a hip path to the future, which explains the Pippin catalog full of young people in stylish clothes, including the woman eager to cruise the Net on a porcelain surfboard.

Pippin is due in the United States by the end of the year at about the same price, although the promotional material will undoubtedly be reworked to reflect cultural sensitivity - bathroom jokes are much more acceptable in Japan than the United States. Bandai said it expects to sell 500,000 units worldwide in 1996.

For Apple, Pippin is an important step toward regaining its reputation as a technology leader. It's also the Cupertino company's first attempt at letting other manufacturers take the entire responsibility for exploiting Apple technology.

But success is far from a sure thing. Competitors are poised to undercut Pippin from every direction. Video-game machines, such as the Sega Saturn and

Sony PlayStation that sell for $300, are likely to have $100 modem attachments by year-end - raising the possibility of Internet access for $200 less than Pippin. Personal computers also are coming down toward the $1,000 price point, offering families far more functions than Pippin for only a few hundred dollars more.

And a number of Silicon Valley heavyweights - including International Business Machines Corp., Oracle Corp. and Sun Microsystems Inc. - have talked about building a $500 network computer, although none of them is far enough along yet to have announced a specific product with a specific shipment date. These devices would come with a keyboard - which will cost Pippin users an extra $100 - making them more suitable for cruising the Internet as it exists today.

However, by letting others take most of the risk with Pippin - Bandai alone is expected to spend $100 million promoting the Pippin Atmark - Apple could reap a substantial reward with minimal investment.

``The potential is significant,'' says Steve Franzese, Apple's senior director of new media operations. He cites what he calls his ``rule of three'' - a projection that 3 million Pippin units, from a number of manufacturers, will be sold in three years, and each piece of Pippin CD-ROM software will bring a $3 royalty to Apple.

Mark Orr, senior manager for Pippin business development, says Apple will get a license fee ``in the low teens'' for each piece of hardware. If, for example, the company gets $15 per unit with Franzese's ``rule of three'' formula, as well as a $3 royalty on 10 million Pippin CD-ROMs Apple would collect $75 million.

That's not a huge sum for a company with sales of $11 billion last year, but it would be a nice return for a project that is running today with a full-time staff of just 30 people. Franzese and Orr won't say how much Apple spent developing Pippin, but they say the project mostly involved retooling existing Apple technology rather than the much more expensive approach of creating new hardware and software from the ground up.

Even if Pippin won't deliver a big financial boost to Apple, it could help the battered company's image in the wake of heavy losses, declining market share, layoffs and top management turnover.

``We're taking a little bit of tarnish off the Apple halo,'' Franzese declares.

Pippin, appropriately named for a variety of small apple, traces its roots back to an internal development project in the early 1990s code-named ``Sweet Pea,'' a prototype hand-held CD-ROM player with a built-in screen.

So far, however, Bandai is the only licensee to step forward since Apple officially unveiled Pippin in December 1994.

``You're seeing other manufacturers let Bandai take the risk,'' says Bruce Ryon, a multimedia electronics analyst with the San Jose research firm Dataquest Inc.

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Photo

Photo: Mark Orr, senior manager for Pippin business develop ment, holds the CD-ROM type device that attaches to a TV for Internet access.

Knight-Ridder Tribune Photo Service