FreeMac's iMac Offer Falls Short, Annoys Apple - TheStreet

FreeMac's iMac Offer Falls Short, Annoys Apple

Without authorization from Apple, FreeMac.com announced that 1 million 'free' iMacs would be shipped in September, and customers are still waiting.
Author:
Publish date:

On the morning of Aug. 3, at the swanky

Ritz-Carlton

hotel, upstart

FreeMac.com

announced that it planned to ship 1 million iMacs in September with the help of partners

Ingram Micro

(IM)

and

EarthLink

(ELNK)

.

"Think Different, For Free," was the company's rallying cry that day.

Apple's

(AAPL) - Get Report

stock spiked 2 points the morning of the FreeMac announcement. "Although 1 million iMacs is a goal and not a plan, FreeMac will surely add to Apple's revenues, and without any risk to Apple's capital,"

PaineWebber

analyst Walter Winnitzki said at the time. Winnitzki has a buy rating on Apple, and has not undertaken any recent underwriting for the company.

Well, now it's October and FreeMacs are nowhere to be found. "It's a joke," says Mitch Mandich, Apple's senior vice president of worldwide sales. "FreeMac was announced without our knowledge and it is not an authorized reseller of Apple."

The free-PC movement, in which users pay nothing, or a small fee, but agree to sign up for a fixed term of Internet use with a specified ISP, has made a huge impact on the U.S. computer industry.

AOL

(AOL)

has been very aggressive in offering discounted PCs, as have retailers such as

Circuit City

(CC) - Get Report

. Idealab's

Free-PC.com

, which offers free PCs in return for constant on-screen advertising, is shipping its second installment of 10,000

Compaq

(CPQ)

Presarios

.

Many observers felt FreeMac.com could quickly move into the public markets. After all, the 1-year-old

eMachines

, which has carved out a niche offering discounted PCs with ISP deals, has already filed for an

IPO.

But it could be that FreeMac may be following in the footsteps of another low-cost computer model -- that of

Microworkz.com

, a Seattle-based company, which has suffered a host of customer complaints, bad press and court action by EarthLink. Making a business out of discounted computers is not easy:

Enchilada

, a New York-based company offering low-cost PCs, went out of business in July.

In FreeMac's case, it seems that company CEO Jonathan Strum may have bitten off too much. Strum says FreeMac's intention all along has been to help Apple build share and make a name for itself. The more iMacs that are in circulation, Strum says, gives fuel to the Cupertino, Calif.-based Apple's push to regain market share.

In fact, Apple should be tickled blueberry with his business model, Strum continues. "If you checked with Steve and told him he was going to sell an extra 1 million iMacs, I don't think he would be disappointed," Strum said in August. "Apple is going to see upside from this."

Trouble is, Apple doesn't see it that way.

While Apple could double its iMac shipments by agreeing to sell units to FreeMac.com, Apple has "mixed emotions about the FreeMac announcement and may even view FreeMac as a foe in accomplishing some of its own strategies," wrote Winnitzki in a report after he talked recently to Apple management. Apple has discussed bundling an ISP service with its iMacs and sees FreeMac as an unwanted upstart. Apple, which doesn't seem to need much help this year, finished the trading session Monday up 1 1/8 to 66 11/16, near its all-time record high.

Having missed his September deadline, Strum now says he is close to securing distribution and retail contracts, and the first allotment of 10,000 iMacs will begin shipping as planned next month, he says. "I feel I understand how this business can work, and have a definite plan in place," says Strum, who founded the Los-Angeles-based Internet-marketing firm

Interactive Marketing Partners

. "I don't think having a company background is needed in this case."

Don't count on it. Without Apple's support, FreeMac's business plan of shipping 1 million iMacs -- or even the 10,000 -- may be next to impossible.

Strum can't sell iMacs until his company is an Apple-authorized reseller, says Jerry Conca, president and CEO of New York-based computer reseller

CCM Computers

. Conca also sold iMacs this year, but stopped because he couldn't meet the quota to remain an Apple-authorized reseller. "Any company that's going to give iMacs away is going to have to be authorized by Apple," Conca says.

Distributor Ingram Micro wants to avoid any headaches. "We can't deal with FreeMac until it's an Apple authorized reseller," says an Ingram spokeswoman. "As soon as it's a reseller, we will be more than happy to work with them. But we strictly stand by Apple and its policies."

Strum, who has just six employees working out of his Santa Monica, Calif.-based headquarters, still sounds confident, but over 500,000 people who applied for a free iMac are still waiting for one to appear on their doorstep. They may have to wait a long, long time.