Netpliance’s 4X Price Hike - Will It Spell Boom or Doom?

Event Summary

June 29, 2000 [Source: Netpliance press release]

Netpliance, Inc. has announced i-opener 2001, the next generation service for Internet appliances. As part of the new service package, i-opener customers will be able to alert one another and chat live for the first time with iChime Direct Messaging using an i-opener Internet appliance.

Adding to its features such as always-on automatic updates and the simple email-waiting light, the new iChime feature will allow i-opener members anywhere to find and alert each other, then begin communicating instantly.

Other new applications and features include:

• The i-opener CommunityCenter, where members meet each other in a safe environment to discuss issues of interest.
  
  
• The i-opener FamilyRoom, where members can interact, share news and organize events with family and friends in a simple forum.
  
  
• The i-opener Stock Tracker.
  
  
• Up to four (4) e-mail accounts per membership.

"The problem with current instant messaging approaches is that there is no way to 'ring' the person you want to converse with. Netpliance's patent-pending iChime Direct Messaging allows a member to ring another member at the press of a button," said Netpliance Chairman and CEO John McHale. "Beyond the cornerstone of simplicity, the new iChime service gives members the best way to communicate instantly with other members, taking the guesswork and frustration out of instant messaging."

"The iChime Direct Messaging Service, included in i-opener 2001, provides virtually free 'long distance ' service, allowing members to alert and communicate with each other instantly," McHale said.

The new features come as part of the new i-opener Membership Program, which invites consumers to become i-opener members by purchasing an i-opener 2001 membership kit for $399 and paying a monthly subscription fee of $21.95 with no long-term service commitments or contracts. The i-opener promotional offer of $99 ended June 30, and Netpliance began accepting orders for i-opener 2001 memberships starting July 1, with the new kits and new capabilities to be available in the fall of this year

The new Membership Program will offer a community of common users, unlimited support, software maintenance and a monthly newsletter. To support its customer base, Netpliance will automatically enroll existing subscribers into the Membership Program and make i-opener 2001 available to them as a free charter member benefit.

Market Impact

We suspect that Netpliance may be cutting its own throat by this move. Although they have a growing subscriber base (currently estimated at 20,000+), much of this was based on an "introductory" price of $99 for the "i-Opener" (as compared to the formerly "official" price of $199). We do understand the concept of charging more to increase profitability. But, based on Netpliance's own comments earlier this year, demand is "inelastic" above $199, so we don't understand how doubling the high-end price is an effective long-term strategy. (Refer to TEC Note "Internet/Information Appliances"). For a start-up without a large subscriber base, increasing market share through a price increase is a counter-intuitive strategy. America Online, with a subscriber base roughly 1000 times the size of Netpliance's, is probably not too worried.

The recent availability of Oracle Chairman Larry Ellison's "New Internet Computer" (NIC), with more features (except no monitor), the freedom to choose your own ISP (including the NIC's own free ISP), and no required subscription charges, probably spells big trouble for Netpliance.

We expect that Netpliance will last until early next year. By that time, the Gateway/AOL appliance will be out, the first MSN Web Companions should be out, and other large manufacturers should be scoring with their appliances. We do not believe the i-opener provides sufficient functionality to compete adequately against any reasonably featured, AOL-focused appliance.

User Recommendations

As we have stated before, the i-Opener series is consumer-focused, not business focused. At $99, its limited-functionality focus was at least cheap enough for the less wealthy - those who hadn't already purchased a PC, and probably couldn't afford one. At $399, plus an additional $21.95 per month (required), it no longer falls into the "great deal" category. Given the price pressure from Ellison's NIC, as well as product pressure from Gateway/AOL and MSN Web Companions, we expect Netpliance will rethink their pricing strategy.

Business users will find little use for this, even with the "improved functionality", and should stick with a mainstream PC (with Internet access), or a more flexible appliance if money is exceptionally tight. The added negative is the (in our opinion) cloudy corporate future, which might mean a dead-end investment.