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Virgin offers Net devices
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April 10, 2000: 6:05 p.m. ET
Virgin Entertainment offers free Web-access devices to get market data
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Virgin Entertainment Group is offering 10,000 free Internet-access devices to individuals who are willing to let the music and entertainment retailer track their movements on the Web.
The Internet-access device is a simplified computer consisting of a flat panel screen, a wireless keyboard, and a 56K modem. It can be used to surf the Internet and send e-mails, but lacks a hard drive, so it cannot perform all the functions of a standard personal computer. And, whenever the machine is turned on the first screen shown is Virgin's Web page.
Virgin hopes to place the appliances with consumers who are heavy buyers of music CDs and videos and are loyal to the Virgin brand. Consumers can apply to get one of the first 10,000 devices at www.virginconnectme.com.
 In addition to profiting by selling its music and videos over the Web-access devices, Virgin will charge advertisers for places on the starting screen and take a cut of electronic commerce transactions users make with vendors other than Virgin.
Virgin refused to disclose how much it will spend to build and distribute the 10,000 devices. Andrea Leon, research director at the Gartner Group in Stamford, Conn., said that Internet-access appliances typically cost $300 to $600 each to build, which means that Virgin could spend more than $4 million on the giveaway.
"They are banking that consumers will do a significant number of transactions on this device to recoup their investment, but that's going to require a lot of buying," Leon said.
According to the company's website, the company is part of Great Britain-based Virgin Enterprise, which was founded in the early 1970s by British entrepreneur Richard Branson. Virgin Enterprise, which spans the entertainment, travel, media and financial industries among others, employs over 25,000 people in more than 200 companies worldwide and had total revenues in 1999 exceeding $5 billion.
InfoGear, which was recently acquired by networking giant Cisco Systems, makes a competing Internet-access appliance called the iPhone, which sells for about $235.
Also, Netpliance Inc., based in Austin, Texas, makes an Internet appliance called the I-Opener, which sells for a promotional price of $99, down from a regular price of $199.
These companies lose money on the hardware, but try to recoup the loss by selling Internet access for a monthly charge, Leon said.
Like most "free" offers, Virgin's Internet appliance comes with some catches. Consumers have to use the machines for at least 10 hours per month to be allowed to keep them, and they have to allow Virgin to track their movements on the Web so that Virgin can extract marketing data from them.
"We will monitor customers' use of the appliance -- how long they're active, where they visit, what they click on," said Dave Alder, a senior vice president and general manager for Virgin's e-commerce efforts in the U.S. "In this day and age, it's all about understanding the consumer's lifestyle, not just buying habits."
Virgin will charge $50 per year for Internet access. The first 10,000 people who sign up for the device will get the first year of Internet access for free, however.
"We see this as a cost-effective way to acquire targeted, high value customers," Alder said.
Internet Appliance Network, a private company based in New York, coordinated the production and design of the Internet appliance for Virgin. IAN, which was funded by the venture capital firm Flatiron Partners, plans to enter into similar Internet appliance branding arrangements with other companies.
Virgin's device will soon face competition from the online giant America Online and computer maker Gateway. Those two companies announced earlier this month that they would launch an Internet-access device featuring AOL's content and services by the end of this year. 
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