Intel Ditches Microsoft OS in New Web Appliances

Intel Corp. (Nasdaq: INTC) is ditching the Microsoft operating system in a new line of Internet appliances under development at a target price of about $200 (US$).

If all goes according to plan, Americans soon will be using these new devices for shopping, e-mailing and conducting business from their kitchen counters and dens.

If there is any doubt about their imminent arrival into American homes, consider recent data from International Data Corporation (IDC) that projects 18.5 million such appliances will ship in the U.S. alone by 2001. That figure is more than the 15.7 million PCs that IDC predicts will be sold this year.

So what are the advantages to the consumer of an Internet appliance over a PC? Simplicity and cost. The advantage for e-tailers may be a legion of new online shoppers that will join the somewhat limited army of consumers that are already online.

Intel Inside, Outside and All Around

Intel Corp. will unveil its own line of non-PC Internet appliances, as well as an ultra-high speed digital subscriber line (DSL) modem that will work with some of the new appliances.

Interestingly, these new appliances will use the Linux operating system rather than an operating system from Microsoft. Intel’s PCs have been closely linked with Microsoft operating systems since the early 1980s.

If it sounds as if Intel is repositioning itself in the marketplace, the effort is deliberate.

The competition among PC makers has quickened, and although Intel is not necessarily interested in developing PCs, it recognizes a good opportunity when it sees one: the 50 percent of American homes without a PC. Intel sees these homes as ideal candidates for something cheaper, faster and easier to navigate.

For households that already have a computer, the appliances may serve as a secondary unit on which conceivably one family member could shop while another works on the PC.

Intel’s Bundling Strategy

In addition to direct sales, Intel also plans to sell the devices on an OEM basis to ISPs, telephone companies and e-commerce sites, who will rent, sell or provide them for free to their customers as part of a bundle of paid services. In fact, Intel is working with local phone companies to try to grow the market for high-speed access, and thereby increase the demand for its new appliances that enable the use of DSL.

For e-tailers, this plan could represent a coming bonanza. Intel’s devices are designed to boot up in less than one minute and be easier to learn and use than a typical PC. The new appliances include a screen, a browser, a Celeron processor, and in the company’s biggest departure to date, the Linux operating system.

Microsoft Still a Major Player

Despite longtime ally Intel’s decision to go with Linux for its appliances, Microsoft is making its own moves not to be outdone.

Another Microsoft partner, Vestel USA, has developed its own appliances that run a Web browser with one window and no toolbars. All the user sees is a few buttons on the screen and on the uniquely-designed Internet-oriented keyboards.

E-tailers will appreciate these new devices because the permanent homepage, MSN’s Web site, includes a button that is hardwired to the shopping section of MSN and Microsoft’s partners.

Making Shopping Irresistible

For Web-based businesses, these moves signal better days to come. After all, if a consumer can purchase a device for less than $200 and connect to the Internet in seconds, the chances are that more people will sign on and shop.

Furthermore, many of the new appliances will accommodate DSL, which also bodes well for shopping because its high speed is far better for displaying pages. Competition is heating up and offers of free DSL equipment and installation are suddenly emerging. At 1.5 megabits per second, DSL may be the turbo-charged magic we all dared to dream about for years.

This combination of new Internet appliances and high speed access may be exactly what causes Americans to incorporate online consumerism into their daily lives. For an industry long on creativity and short on profits, daily inclusion into the American lifestyle could lead to more promising bottom lines for e-tailers.