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General Magic Plans Giveaway To Boost Sales

September 14, 1995

General Magic Inc. is planning to overcome a series of marketing miscues with a new trick: charge nothing for a product and make money.

Like many other software and on-line services companies, General Magic has been blindsided by the explosive growth of the Internet and its graphical arm, the World Wide Web.

Now, like a growing number of those companies, it plans to use the Internet and on-line vendors to give away its own software in the hope of creating a standard around which it can sell its products.

General Magic was formed four years ago to develop Magic Cap, an easy-to-use communications program for hand-held devices. Later, it began developing a communications language, Telescript, that allows users to send chunks of mobile programs, called intelligent agents, across computer networks to automatically perform such chores as filtering electronic mail or searching for the cheapest airfare. Marc Porat, General Magic’s chief executive officer, formed a powerful alliance with major telecommunications, consumer-electronics and computer companies, including AT&T Corp., Sony Corp. and Motorola Inc.

Mr. Porat envisioned an electronic marketplace, built piecemeal by AT&T and other telecommunications companies, and accessed by hand-held communicators. The idea appealed to investors: Despite four consecutive years of losses, General Magic went public in February, with the stock soaring 90 percent in the first day.

But now it’s becoming clear that the Web will probably be the main electronic marketplace, and it can be accessed best by personal computers. Companies such as Netscape Communications Corp., Adobe Systems Inc. and Sun Microsystems Inc. are rushing to put communications software on the Web, while proprietary on-line services are pondering how to distinguish their offerings from those of companies who are marketing their products on the Web directly to consumers, at little or no charge.

Because of its initial strategy, General Magic has been left behind. Telescript is up and running only on AT&T’s PersonaLink on-line service, which is off to a sluggish start. Magic Cap is available only on two slow-selling hand-held devices from Motorola and Sony. What’s worse, General Magic has run into critical delays in modifying Magic Cap to operate on Windows, Microsoft Corp.’s best-selling operating system that runs most of the world’s personal computers. Initially due out around midyear, Magic Cap for Windows now won’t be available until next year.

Mr. Porat blames a subcontractor, whom he won’t identify, for failing to deliver a critical component. Another General Magic officer, vice president Michael Stern, offers this explanation: ``We and AT&T wanted to make sure there was sufficient capacity 1/8on PersonaLink 3/8 to handle new customers.″ An AT&T official said the idea that AT&T was afraid of increased traffic ``has logical problems on the face of it.″

Lots of companies were ambushed by the Net. ``I have a great affinity for the Internet, but only for the past year has it had any business visibility,″ says James White, Telescript’s inventor and General Magic’s vice president of technology. Now, he says, ``we have to understand how this affects our business approach.″

Mr. Porat’s new strategy is to turn the Internet into a solution rather than a problem. General Magic will give away Magic Cap for Windows through PersonaLink and other on-line services, in the hope of boosting sales of Telescript and later selling Magic Cap upgrades and applications. Web merchants and on-line providers will have to install Telescript ``engines″ on their servers to enable consumers to use the agent, and will pay to do that only if millions of consumers have Magic Cap on their PCs.

Last week, General Magic announced it was creating divisions to facilitate the new strategy: one to market Magic Cap and the other to sell Telescript. Conceivably, the Telescript division could push its product by offering stripped-down Telescript engines as add-ons to best-selling Internet browsers or as applications to be downloaded into PCs. Such a tactic might undermine the Magic Cap division, but Mr. Stern says each division has been ``given the power to do whatever is needed to make the products successful.″

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