RealTime IT News

Netpliance Unveils a Real i-opener

Internet appliance maker Netpliance is drawing fire over its recent price hike on its flagship i-opener device. Billed as a one-stop, plug-n-play ramp onto the information superhighway, the newcomer's i-opener product retailed for about $100 during its IPO debut. Now that the confetti's been swept up and the champagne bottles corked, the company has to worry about making money.

Netpliance is crossing its fingers that Web surfers will be willing to pony up $300 to $500 for its marginally popular i-opener Net appliance. But I've got news for you - they won't. And what's more, despite the start-up's tumble nearly 80% from its 52-week high, at roughly a half a billion dollar market cap, Netpliance is still grossly overvalued. If you're a holder, you ought not to be.

The concept seemed to glitter during sunnier times. A lean, mean machine that users could have at their bedside table to browse the Web or access e-mail, rather than a complicated, clunky computer. Sure it would have a few limitations like being slower and less powerful than your average PC out of the box. But, newbies and diehards alike would flock to the i-opener because it would be cheaper.

Which was fine and dandy, until a nobody start-up called eMachines emerged in 1998. When eMachines first arrived on the PC scene, analysts openly scoffed and media pundits snickered at the upstart who dared challenge the likes of Dell , Hewlett-Packard and Compaq . But two short years later, eMachines ballooned into one of the fastest high-tech success stories in history, raking in revenue hand over fist, and consumers were hardly laughing.

EMachines almost single-handedly created the sub-$1000 and sub-$500 PC industry. And alongside that, the PC maker dragged the big boys kicking and screaming to compete years ahead of schedule. While the company's ultra-aggressive pricing translated into razor thin margins in little more than a commodity business, it sets a new standard that consumers have eMachines to thank for.

Robust, fully functional desktops for under $500 bucks. Get the picture? Netpliance's promotional sub-$100 i-opener competed fairly well with the likes of WebTV and a handful of under-funded me-too competitors. But its latest price bump, without question, will make it a dinosaur competing with comparably priced fully functional PCs.

The only things you need to know as an investor are the following. First, Netpliance's products don't allow you to use any other ISP than its own pricier branded Internet access, which is the fastest way to extinction. Second, the products are inferior to fully functional PCs, which Netpliance will now be competing with at the i-opener's new price. And lastly, the company made a ridiculous $1.3 million on brow-raising losses of $42 million for the three months ended March 31, 2000.

I was floored to see investors eat Netpliance's bloated 8 million share offering in mid-March. Like a cockroach in the IPO pipeline for months, the company managed to raise a staggering $150 million in its debut, despite my loudest objections. But that was during the frothiest of times, and now Netpliance will have to actually make money, without the help of generous investors. This business model is fundamentally flawed and out of step with the times. Investors should expect a more reasonable valuation to be somewhere in the sub-$5 range.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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