Will Buyers Embrace AOL's PC?

• Email
• Share
• Print

So, America Online wants to get into the personal-computer business. Is Time Warner (NYSE: TWX) loony tunes or what?

I mean, come on, it's entering an arena dominated by Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ), and Apple Computer (Nasdaq: AAPL), right? Well, fear not, since I'd have to presume the company's main goal here is to beef up distribution of the AOL service, which has been leaking subscribers lately (to see the latest number of defectors, check out the company's latest earnings scorecard).

See, the deal is this: For the low price of $299, a value buyer can get a system powered by an Intel (Nasdaq: INTC) Celeron chip and equipped with Windows XP by Microsoft (Nasdaq: MSFT); PC maker/marketer Systemax will be building the units. The kicker is you also are obligated to take the AOL product for a year at the monthly rate of $23.90. Office Depot (NYSE: ODP) will be the initial distributor of the desktops.

It isn't a bad idea on the surface and is probably an experiment that should be tried; certainly there is a demand for cheap computers (Microsoft is trying a similar scheme). However, I can't help but wonder how this marketing program will work considering the damaged brand equity of AOL. Time Warner's Internet application has become something of a cultural joke in some tech circles. I've mentioned before my own personal problems with it; honestly, I'm lucky if I can get through a 30-minute session without disconnecting.

The first question I would ask myself before buying an AOL-branded desktop is, "Will it be as unstable as AOL?" Sure, that makes no sense on the surface; after all, Intel chips and XP software are what define the stability in this instance. Remember what I said about brand equity, though -- a brand is an indelible image pumped into a consumer's mind over time. It can be either positive or negative. My personal opinion is that AOL is negative in that department these days (I don't have any current, objective measurements on this issue at my disposal, admittedly).

The counterpoint to the preceding paragraph is that the type of consumer who would spring for an affordable AOL PC is not likely to be too concerned -- or perhaps even aware -- of AOL's unpopularity among certain techno-connected demographics (older folks and Hispanics are the demographics that AOL will target with the PC). True enough. Still, the whole thing does strike me as comedic on some level.

Time Warner shareholders will always be concerned about their company's AOL problems and its dragging effect on the stock. I'm not sure what the solution is at this point, except a nice round of capital investment geared toward better reliability. (I'm not kidding --as I write this, AOL is attempting to automatically reconnect for me, after only a few minutes online. Ugh!)

Time Warner and Dell Computer are both Motley Fool Stock Advisor recommendations. Sign up for six months without risk to learn more.

Fool contributor Steven Mallas owns none of the companies mentioned.