Originally created 03/25/01

Internet appliances fail to catch on

SAN JOSE, Calif. -- It was supposed to be the uncomputer, a device so small and simple that anyone could surf the Web, read e-mail and set up a calendar. All from the convenience of a kitchen countertop.

But 3Com Corp.'s Audrey, like many so-called Internet appliances, never took off as technophiles complained of its limited functionality and novices were intimidated by its buttons. Then there was its $499 price tag.

On Wednesday, 3Com announced it was closing its Internet appliances division, which includes the toaster-size Audrey and the Kerbango Internet radio. In the quarter that ended March 2, the entire division generated only $9 million in revenue, the company said.

The company said it would continue to support the Audrey, which was introduced with great fanfare late last year as a solution for busy families but suffered poor sales.

Like its immediate competitors, Audrey struggled because its maker did not target a particular group of users, said Bruce Kasrel, a senior analyst with Forrester Research.

"The Audrey tried to be everything," he said. "It tried to be a Palm Pilot organizer and a Web surfing device. It was so overly featured, it ceased to be a one-purpose device."

3Com might have had more success if, for instance, Audrey was a peripheral to Palm handheld organizers, Kasrel said. Everyone in a family could then synchronize their handhelds and check for scheduling conflicts.

Audrey, however, could not show a calendar in weekly or monthly mode.

"Ask anyone who has a family how they use calendars, they always have a big master calendar where they write down and see what's going on," Kasrel said. "This product could not even do that."

Unlike Audrey, the Kerbango Internet radio, which plays music and other programs from the Internet, had a strong purpose and targeted audience, Kasrel said. But the product never shipped.

"It actually could be a very interesting product," he said. "It's a shame that they're scuttling it. I hope somebody comes and buys that technology and makes it into a product."

Other Internet appliance makers face challenges similar to the Audrey, including Austin-based Netpliance, whose stock is now trading around 40 cents a share.

Some large computer makers, including Gateway and Compaq, also sell Internet appliances.

Gateway announced earlier this month that is was rethinking its strategy, including a wireless Web tablet slated for launch this year. It sells two Internet appliances, one based on the PC model, one an Internet radio.

Compaq declined to discuss its sales, citing a quiet period.

"I don't think anybody is doing all that well with any of these things," said Alan Davis, a senior equities analyst at the Red Chip Review.

Netpliance's $299 i-opener, for instance, included a flat-panel screen and a connection to the Internet for a monthly fee. The company stopped marketing its own machines, instead opting to sell through other companies such as AT&T and EarthLink.

The i-opener was targeted at seniors and novices -- a tough market that the computer industry has failed to crack. Like 3Com's, the devices also were a tough sale to computer aficionados who rush out to buy the latest gadget.

"If you already have a PC in your house, why do you want to spend money on a device that's going to have limited capabilities?" Davis said.

Much of the problem is related to the appliances' limited functionality or lack of features.

"The right device hasn't been designed yet," Davis said. "All these companies are throwing designs at the market and seeing what sticks. People don't know even if they want combination devices."

As companies try to create a new category of devices, other gadget makers are adding the same technology into cellphones, laptops and handheld computers.

Yet Davis and others believe there might be uses that could rescue the devices from sales doldrums. If they are linked to a high-speed connection, they could serve as an Internet phone that bypasses the phone company's network and charges.

Or, with wireless standards emerging, they could link cellphones, pagers, handheld computers and other gadgets.

"The killer application is what's lacking," Davis said.

On the Net:

3Com's Audrey: http://ergo.3com.com/ergo/html/homepage.html

Netpliance: http://www.netpliance.com


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