But the hurdles to these appliances' success thus far are indicative of some fundamental difficulties with the product category itself. Though installing and maintaining an Internet appliance is easier than administering a conventional server, there's still room for confusion among would-be buyers. For instance, some Internet appliances require that a network be in place, and others can connect standalone PCs through the addition of a low-cost hub.

Buyers also need some understanding of how to get their Internet connection. "If you were going to put in an Internet connection," says Extended Systems' Stingley, "you'd have to call in an ISP, you'd have to sign up for one of their services, then typically you'd have to try to coordinate some type of an Internet pipe to and from your building, and try to figure out which type of connectivity product would be best for your business." Many of these small businesses have no idea which one to use, he says, so they turn to resellers, who can offer them a turnkey solution, when buying an Internet appliance.

After its purchase last year of Whistle Communications, which manufactures the Interjet II Internet appliance, IBM created a comprehensive subscription-based offering, Small Business WebConnections, to give smaller businesses and remote branch offices a one-stop shop to set up E-business services. Businesses can opt for services that include ISP selection, activation of the Internet connection, and registration and annual payment of a domain name. IBM also helps to identify certified local resellers for businesses that need assistance, and provides free round-the-clock telephone support.

Instead of buying the Internet appliance, users get the box for one or two years by subscribing to one of three services. Monthly rates range from $99 for entry-level, dial-up service to $449 for the highest level of service with a Class 3 DSL connection.

The entry-level service provides E-mail, Internet access, and firewall protection; "gold" service adds remote network access, a Web-site design service, and IBM hosting for a company's Web site, with up to 50 Gbytes of storage. A premium service is aimed at companies that want to conduct E-commerce on the Web; it adds remote hosting of an online product catalog and third-party credit-card processing. Other companies are following suit: Cohen says eSoft, which Gateway has invested in, will make its products available on a subscription basis in the future.

According to IBM's Judy Smolski, VP of marketing for the global small-business unit, "The whole idea is for us to get a stakehold in a significant number of small businesses. As the market matures, we'll take more services to market that we can deliver from IBM or our partners through the Web, delivered through this device to literally millions of small businesses." Additional product and services offered could include remote monitoring for security and virus protection, and applications hosting for vertical industries.

Encanto Networks is beginning to de-emphasize its hardware business in favor of becoming an application service provider and is licensing its Internet connection software, InstantConnect, to other vendors to bundle with their appliances. It recently teamed with Lucent Technologies Inc.; the latter introduced the Web Communications Server, based on Encanto's technology. It includes tools users need for shared Internet access, integrated voice and E-mail messaging, Internet domain name management, and E-commerce payment processing. Encanto's InstantConnect service includes Internet access and E-mail service through AT&T Global Services and other partners, but Encanto is also cutting deals to offer rentable applications, such as human resources, knowledge management, and customer support software, from third parties via that service.

Still, says Dataquest's Xiang, "the ASP model has generated lots of media hype but still faces the major challenge of low awareness in the target small and midsize business market." Neither World Class Automotive Group's Reed nor INCA's Bennett saw significant value in the ASP model for their companies. But Rock Jones, a partner of Armstrong Planning and Design and an Extended Systems customer, says he would consider having hosted applications delivered to his company via his Internet appliance. Says Jones, whose company provides interior design services in Boise, Idaho, "I could pick out the parts I wanted, the software that was applicable to my needs, and leave the rest."

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