Internet Lite: Who Needs A Pc?

Now that everything from the Pentagon to the Mighty Morphin Power Rangers has a home page on the World Wide Web, you would think people by the millions would be slipping into cyberspace in the comfort of their homes. Apparently not. While several million souls are roaming the Web, according to recent surveys, most of them are doing it at work.

But, argues a growing band of electronics and software companies, everybody would be surfing the Net from the sofa by now--if they didn't have to shell out $2,000 for a multimedia PC and figure out how to use it. The most high-profile evangelists of this view have been Oracle Corp. and Sun Microsystems Inc. Executives from both companies have been preaching that the PC is irrelevant and the age of the "Internet appliance" is at hand. This beast, sort of a bare-bones terminal just for cruising the Internet, could do much of what PCs do in cyberspace--for a fraction of the cost. PC makers, naturally, scoff at the idea--pointing out that millions of consumers are already buying PCs to cruise the Net.

FIRST UP. Nonetheless, the race to create an Internet appliance is on. Virtually all leading consumer electronics companies are working on approaches to "Internet Lite"--inexpensive gadgets to bring the Net into the living room. Philips, Thomson, Sega, and Sony are either retooling existing home machines or developing new ones that will bring Web pages to the TV screen. And their managers--more than those at Oracle, Sun, or even Apple--truly understand consumer markets and entertainment products.

First out of the gate is Dutch consumer electronics giant Philips. In October, its new wholly owned British subsidiary, CD-Online Ltd., began selling a $150 Internet starter kit consisting of a modem, cables, and a disk holding all the necessary software. It turns Philips' $500 CD-i (for CD-interactive) player into a browser that displays Web pages on an ordinary TV. The disk guides you to CD-Online's home page, which contains pointers for navigating the Web. For now, the idea is to give consumers a simple, immediate link to the Web. In the future, Philips hopes to get content providers to create pages that "hyperlink" to material on CD-i disks--to go from today's sports scores to great moments in football, for example.

The setup is aimed at breathing new life into CD-i, a Philips technology that has stalled in the market. CD-i was built to bring multimedia "edutainment" to the masses. But the format was buried by the CD-ROM revolution on PCs. Philips has sold barely a million CD-i players since they were introduced in 1991. Now, the company figures it can restart sales by being first to exploit the Web's "family" dimensions. "People think the Internet is about transactions," says CD-Online Managing Director Andrew M. Orange. "It's also about entertainment."

In Japan, Sega Enterprises Ltd. has taken a similar tack, developing a $100 keyboard and modem package. It will turn Sega's Saturn game console, which uses souped-up CD-ROM disk technology, into a communications tool. Sega hopes users will test out and purchase new games online, and lock their friends in mortal combat over the Net. Sony Corp. could do the same sort of thing with its Play Station game machine. Just introduced in the U.S., the powerful machine has been a huge hit in Japan where Sony has sold more than 1 million units since last December.

For now, Sony's Internet strategy hinges on its world-beating video technologies. Last month in Japan, Sony launched two new models of wide-screen TVs that can double as cinematic Internet viewers. These premium TVs, which sell for about $2,500, were designed for high-definition TV, so they show images that are twice as sharp as ordinary TV pictures. Plug a laptop or Mac PowerBook into the front of the set, and the screen becomes a monitor. If an Internet-crazed market demands higher resolution, "prices could come down quickly," says Kenji Hori, chief technology officer at Sony Corp. of America.

Thomson Consumer Electronics, the leading TV and VCR maker in North America, is also taking a TV-centric approach. Having taught about 1 million U.S. customers how to navigate 150 channels of satellite TV using a remote control and on-screen menus, Thomson figures it can apply the same tricks to Internet navigation. Also, the satellite links that bring in sharp digital TV signals can download any kind of Internet "content" at 23 megabits per second-- 1,600 times faster than the 14.4-kilobit telephone modems in most home PCs.

SURVIVORS. When it comes to cultivating a mass market, the consumer electronics camp has some obvious advantages over PC companies. Its customers already own--and regularly replace--the most expensive component: the television. And while the PC makers consider themselves lean-and-mean survivors after six years of price wars, TV companies have been living off huge volumes and minute margins for decades. "We think about what 100 million households really want," says Louis E. Lenzi, vice-president of Thomson's Americas Design Operation. "We aim for the lowest product cost and the easiest interface."

Sun and Oracle both think the simplest solution is a new kind of low-cost Web-station or Internet "client." The assumption is that users will draw whatever resources they need from the Internet, rather than paying for them in a box of hardware and software. Using tools such as Sun's Java--a programming language for creating network-based software--it will be easy to tap into any information or programming on the Net, says Sun President Scott McNealy. So, you could get by with a $500 box with a microprocessor and enough memory to hold the software that he calls a "Java virtual machine." The network does all the heavy lifting. Sun is seeking partners to build such a box and Toshiba Corp. has already announced plans to build Java into a "new framework" for mobile computing. Oracle says its sub-PC will be out next year.

Apple Computer Inc. could also emerge as a leader in the race to launch Internet Lite. This month, it is unveiling the next generation of personal digital assistants (nee Newton), with an operating system that can access the Net. Apple has teamed up with Tokyo toymaker Bandai Co., creator of the Power Rangers, to develop a sub-Macintosh product based on Apple's "Pippin" design. It should debut in Japan in March, and later in the U.S.

Pippin machines will use scaled-down Apple software, cost $500 or less, and plug into a TV. They will run some programs written for the Mac and also browse the Web. Says International Data Corp. PC analyst Richard Zwetchkenbaum: "Pippin could be their magic card" for the next wave of lifestyle computing devices. Adds Doug McLean, Apple's director of cybertech products: "It won't be long before you'll get Internet service from kiosks, handheld devices, gameplayers, and anything with a wire leading to it."

Powerful forces are arrayed against these Internet appliances. For one thing, Intel and a gaggle of PC partners are fighting back with a technology called Intercast. They plan to put TV programming directly on the PC screen and let broadcasters send data to computer users over a portion of the TV signal called the vertical blanking interval.

CHATTING. And there are intrinsic problems with Internet Lite. Most Web users like to download some of the treasures they find in cyberspace--they want disk storage. Moreover, PC generations are turning so quickly that Internet-ready PCs based on Intel Corp.'s old 486 chips are selling for little more than the planned sub-PCs. So why settle for a dumb terminal? "There's a lot of hype going on now around $500 or $300 boxes," sniffs Compaq CEO Eckhard Pfeiffer. Says Brad Chase, Microsoft Inc.'s general manager of its Personal Systems Group. "It's a fun thing to chat about at a bar, but that's about it."

There's more to it than talk--if not in Silicon Valley, at least in Japan. There, Sony and Bandai are both setting up Internet access subsidiaries, as is consumer electronics giant LG Electronics in Seoul, which manufactures the 3DO game machine. These companies may not be big in PCs. But they understand plenty about pricing and ease of use.

Market researcher IDC expects Internet Lite gadgets to coexist with higher-function PCs. Over time, predicts Frank Gens, senior vice-president for research, they're likely to become appliances that banks give away to new customers: Sign up for home banking, and you'll get the Internet box for free. "Once that happens, it becomes a completely different PC industry," he says. "If I were Compaq, IBM, or Dell, I'd be thinking hard about that."

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