First USA Using PC Giveaway as Carrot For New Card and Internet

"free" personal computer in front of some applicants for credit cards.

The Bank One Corp. credit card subsidiary -- known for its especially aggressive direct marketing strategies and its current bout with an earnings shortfall -- has signed two deals in recent months with companies that are set up to "give away" computers -- to people who commit to paying monthly fees over three years for Internet access.

One is PeoplePC, a San Francisco company launched with fanfare last month that distributes PCs from Toshiba Corp. and Compaq Computer Corp. The other, FreeMac of Santa Monica, Calif., is waiting to begin marketing "free" Apple computers while it seeks to secure equity investments.

First USA seems to be the first credit card company to align itself with the phenomenon. The company, No. 2 behind Citigroup Inc. in bank card receivables, says its goal is to sign up new customers and attract customers to WingspanBank.com, the Internet bank that opened in May.

"We are providing a different, innovative approach to marketing card offers to people," said First USA spokesman Jeff Unkle. "The direct mail channel is flooded. We haven't given up on direct mail, but we are looking at other distribution channels."

PeoplePC is working to equip its computer keyboards with function buttons that will link users directly to the WingspanBank Web site. Mohan Gyani, president and chief financial officer of PeoplePC, said it is making provisions for other special keys "for several shortcuts to Internet sites." First USA has the credit card industry "exclusive."

A desktop icon will provide an additional link to the Internet banking site. "We are hoping to increase the traffic to Wingspan," Mr. Unkle said.

First USA, which already has a marketing deal with Dell Computer Corp., sent the first batch of mailings this month for a cobranded PeoplePC card. Mr. Gyani said First USA is "very active in comarketing" and supplied a prescreened list of millions of prospects.

Account holders would get a computer after signing a three-year contract that locks them into monthly payments of $24.95.

"Our expectation is that a lot of people are going to come through this offer," Mr. Unkle said.

Some experts question whether First USA is aiming for the right group of consumers.

"Are the people who don't have computers the ones you want to target?" asked W. Christopher Staab, an associate at Auriemma Consulting Group of Westbury, N.Y. "Are they going to be attracted to on-line banking services if they don't already have a computer?"

Mr. Unkle of First USA said, "We are not going to change our credit criteria. We have no concern that we will put on people of lesser credit quality."

Though PeoplePC does not require consumers to apply for a First USA card before applying for a computer, FreeMac.com has made qualifying for a First USA credit card a prerequisite.

As part of its deal with Apple Computer Inc., FreeMac plans to offer one million iMacs to new First USA cardholders, but money is a sticking point. First USA and FreeMac had agreed to begin marketing the program in September, but FreeMac is still seeking funding, delaying the launch.

Money does not seem to be a problem for PeoplePC. On Monday it announced $65 million in funding from Softbank Technology Ventures, the San Jose, Calif., firm noted for its early backing of Yahoo and E-Trade, among others. Among PeoplePC's board members are former Apple Computer Inc. chairman John Sculley and investment fund manager Michael J. Price.

Nick Grouf, the founder, chairman, and chief executive officer of PeoplePC, was a founder of Firefly Network Inc., which was bought by Microsoft Corp. in 1998.

PeoplePC says it is prepared to ship 200,000 Toshiba PCs over the next few months. It is also spending $25 million to $40 million on television and print ads and other marketing initiatives.

First USA is piggybacking on what some analysts call a compelling offer to people who have not joined the computer age.

"If you don't have a PC and you've wanted one for a while, this becomes a good offer," said Kenneth Kerr, an analyst at GartnerGroup of Stanford, Conn.

For a credit card issuer, such a program will work out only if the bank has "a strategy in place to get this into the hands of their high-end customer," Mr. Kerr said. "On the surface, it would seem that the free PC market is for less financially well-off consumers."

Mr. Gyani of PeoplePC said his targets are "people who have had Internet experience before -- they may have an aging computer or they may have one at work."

Other companies dabbling in this market include Compuserve, which is offering a $400 rebate on an IBM computer for people who sign up for its Internet service for three years. Another, FreePC, was inundated with requests for its computer tied to a three-year contract for Internet access and had to close off new applicants.

James W. Stewart, president and chief executive officer of WingspanBank.com, who is also responsible for First USA's Internet partnerships, is heading up the PeoplePC partnership. With the recent departure of Richard W. Vague as chairman and chief executive officer of First USA, Mr. Stewart now reports to his successor, William Boardman.

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