Netpliance Awaits Savior

The clock is running out for Netpliance, a pioneering Internet appliance start-up that was unable to sustain its original business model.

The companys stock has been trading at less than $1 since mid-December and is in danger of being delisted by Nasdaq. Last month, a small group of investors led by John McHale, Netpliances chairman and chief executive, said it was interested in a buyout of the Austin, Texas, company for 65 cents per share — a move that prompted two class-action lawsuits, filed by Netpliance shareholders who alleged the buyout price was “unfair and wrongful.”

Last week, McHale and the other investors withdrew their offer to take Netpliance private. McHale did not return calls requesting comment.

The companys troubles came to a head last fall. Its direct-to-consumer model was bleeding cash: Netpliance lost $27.2 million for the first nine months of 2000 by subsidizing its special-purpose Internet terminals, sold at less than cost to encourage consumers to sign up for the service. In November, the company revamped its business strategy to license its technology and back-end services, firing 93 employees in the process. In what seemed like promising news, Netpliance at the time announced a deal to sell its I-opener appliance through QVC, with service provided by AT&T WorldNet. The company also said it had an agreement with EarthLink to launch an EarthLink appliance service powered by Netpliance.

But those deals did not turn out the way Netpliance hoped.

An EarthLink spokesman said the company never had a definitive deal to offer Netpliances I-opener, and has no plans to do so for the foreseeable future. A Netpliance spokesman acknowledged the companys discussions with EarthLink “have not yet come to fruition as a full-scale agreement.” Netpliances arrangement with QVC also fell through. Instead, Netpliance struck a one-time deal with the Home Shopping Network, which sold about 15,000 of the I-opener devices in December.

AT&T WorldNet continues to provide service for existing I-opener subscribers, which now number roughly 55,000 active users. But otherwise, Netpliance doesnt have any publicly announced partners actively selling its appliance or developing services based on it.