PC manufacturer Gateway, in partnership with Internet giant America Online and chipmakers Broadcom and Transmeta, becomes the latest PC manufacturer to enter the Net appliance race Friday. The quartet will demonstrate its new Web terminal in its natural environment: a networked digital home -- it is the first product in the company's eagerly awaited line of Internet appliances. Gateway has also announced plans to sell a kitchen Net appliance and a mobile tablet device. Compaq and eMachines, among others, have a head start in the market. And 3Com and Sonicblue, formerly S3, have said they plan to enter the running. The computer makers may be looking for the next big thing to replace PCs among home users, but so far the market reception for Net appliances remains cool. According to reports from subscribers on Wednesday, Virgin Entertainment Group has pulled the plug on its Internet appliance program. Consumers' initial reaction has not deterred Net appliance manufacturers, who are convinced the market will grow over time. Research firm IDC expects sales to hit 89 million units, worth $17.8bn (£12.3bn), by 2004. GartnerGroup analyst PJ McNealy said the four-way partnership makes sense for AOL given its base of installed users. "They don't have to, as a box maker, get something subsidised in the way of hardware," McNealy said. "I'm sceptical of the subsidy model." McNealy qualified his comments by saying that if current AOL users have to sign up for a second account to use the device, that would slow its acceptance among home users. Gateway's new Web terminal is the first of three Net appliances that will use the Instant AOL service for its user interface and Internet access. The devices are based on Transmeta's Crusoe TM 3000-series processors and Linux operating system. Gateway is expected to manufacture the devices and market them through its direct-sales channel. The home-networking technology, to be based on Broadcom's HPNA 2.0 home-networking processors, will allow users to share Internet access and voice Internet Protocol connections with other devices, such as PCs. It also will allow content streaming and the shared use of printers and other PC peripherals. With Friday's announcement, Gateway will get a jump on the Comdex/Fall trade show in Las Vegas, where the company is expected to offer the first public viewing of its Net appliance line. (ZDNet UK News will provide a Comdex special report beginning Monday.) Internet appliances are once again expected to be a hot topic at the Las Vegas trade show, with several vendors expected to make Net appliance announcements at Comdex. Netpliance, which recently dropped the price on its i-Opener Net appliance from $399 to $299, is also expected to make announcements at Comdex. At Comdex 1999, Microsoft chairman Bill Gates touted the MSN Companion Net appliance platform. Designed to provide a simple interface to the Web, email, and other Microsoft network services, MSN Companion has just begun to hit the market in devices from Compaq and eMachines. Compaq recently launched a MSN Companion device, priced at $499, and eMachines is offering its MSN Companion appliance at $349. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read what others have said.