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 [email protected].

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