Thin clients: So out, they're in?

Wyse's relatively new CEO, John Kish, believes that the thin era may be upon us. In thin-client computing, the terminal on your desk (or in your pocket disguised as a cell phone) doesn't compute. Instead, it relays information to and from servers and hard drives that perform all the computation work, Internet surfing and data storage. Thin clients cost less, are easier to manage, and are less susceptible to security breaches, Kish and others say.

On paper, it sounds like a lead-pipe cinch. But what will it take for the idea to catch on? Kish recently hashed over the issue with CNET News.com.

Can you give us a quick overview of what's going on at Wyse?
Kish: Wyse is a 25-year-old technology company that started here in the valley in '81. We started off making character mode terminals and moved into Windows-based clients in the mid '90s. We actually invented the Windows-based client together with Microsoft and with Citrix, and right now we have about 40 percent market share worldwide.

The center of gravity (in thin clients) has tended to revolve around a couple of very specific things, chief among them was reliability. There are no moving parts in a thin client. There's no drive, so the mean time between failure is about an order of magnitude greater than you'd find in a PC. Your typical PC has about 15,000 hours between failures. A typical thin client has about 150,000. So people tended to put these in places where they wanted a machine that wouldn't break, like on oil drilling platforms in the North Sea.

Then they sort of started popping up and over. We now account for about 5 percent of all desktops and enterprise worldwide. IDC expects that number to grow to about 10 percent over the next three years. What's interesting is that IDC has noted that the thin client market itself should grow at about 25 percent annually for the next 5 years.

A lot of companies have flogged thin clients for years, but they haven't become widespread. What has changed that will make them appealing now?
Kish: I think as corporate networks and as networks in general have become faster and faster, it's really becoming very difficult to make the case anymore that a PC is faster than a thin client. Years ago, I think the primary thing that people noticed was latency that occurred between when you wanted the data and when you got it.

Cost is another factor. We see very interesting experiments occurring right now in South America and Africa. If you think about it, the idea here is to provide a cost-effective computing solution. Another advantage for some developing countries is the fact that if you steal them, they don't do anything. Literally, there was a bank in Kenya that we spoke to that put in a bank of PCs and three months later 80 percent of them were stolen. They then replaced them with thin clients and they lost two.

Look at some of the security problems at the national labs. Imagine what wouldn't have happened if someone hadn't been able to take their computer home. There is no data on these. There is no drive, there is no CD-ROM. We are the preferred solution right now for HIPAA compliance.

What geographical regions are driving demand?
Kish: We are going to see the greatest growth coming in Asia. That will then be followed by Europe and then, finally, North America. When I took the helm nine months ago and we looked underneath at the numbers, we saw it coming in Asia. So first we shifted 50 percent of the company's work force to serve the Asian market. We opened up development centers in Bangalore and Beijing and really have gone about trying to get the resources as close to the market as we can. We literally had no one in India on Jan. 1st and now we have 140.

Now, obviously these markets are going to have different drivers. They are incredibly price-sensitive. So we are designing products which will be tailored to specific Asian markets and which will carry much lower price points than our typical product if they were selling in the U.K. or the U.S. or Germany.

What do your products sell for now?
Kish: The lowest-price product that we sell is right around $225 at volume. It runs our own proprietary operating system, which by itself accounts for 20 percent of the overall market. People use it because it's very, very fast. It takes three seconds to boot up. I think a top-end model is probably about $700, but that's a very specific product that does video stream decoding. The government and other brokerages and other people are buying those.

Would $225 include a monitor?
Kish: That's just the box itself. The challenge of course is how do you bring down that price point where it becomes interesting inside India or China, where $100 is an upper limit for what people are really looking to spend. There are a number of initiatives we've taken, including taking the entire thin client and putting it on a single chip. This will be coming out next year. This will allow us to drop the overall cost precipitously. In fact, the chips will become embedded just in the back of the monitors, so there won't even be a cigar box anymore.

Thin client guys always tout the lower cost of ownership. How do your products compare to PCs on that scale?
Kish: Forrester and others have done these studies and they basically show that the total cost of ownership is anywhere from 40 percent to 60 percent less for a thin client versus a PC, and the real reason for that is just manageability. Very, very rarely do you find a well-managed PC in a corporate environment.

It's too hard to do. People put their own applications on it. People decide they want to play solitaire. People put chess programs on it. They don't do the upgrade when they are supposed to. They don't back up their network.

A big emphasis right now is on the federal government, especially in secure agencies. There are other things going on, too. Japan, on April 1st, passed a law called the Data Protection Act, which makes it illegal for companies to store consumer information on a PC. So you should see the mad scramble going on inside of Japanese industries right now as they're trying to figure out what to do.

Are you teaming up with NEC and then selling your thin clients with them, or are you selling under their brand?
Kish: Both. It really just depends upon the particular trading group that you're working with. Inside the Japanese government, there are some very strong brand names that we would be foolish to try to go in and subvert. So we will OEM (original equipment manufacturer) to those people. Inside of commercial areas, there are cases where big companies might want to use our brand or they might want to use theirs. We're tracking similar legislation in Korea, in Singapore.

Thin clients have been a tough sell in North America and Europe. If you give one to someone, they instantly think they've been singled out as a second-class citizen.
Kish: You can laugh at me when I say this, but it is a leap of faith (to say) that if you have a PC you know where the data is. A lot of people think that if they go to the Web site and look at information, it is on their computer. Well, I hate to break it to you, but other than some temporary file buffers, the data is still back there. My whole point here is that we can create exactly the same experience. If I were to bring a thin client in here and you couldn't tell the difference, what difference would it make to you?

One executive said to me, "The big problem is that if the network is down, then people can't do their jobs with the thin client." I told him, "But if the network is down with the PC, they can't do their job either. What they can do is listen to music and play games."

What about mobility?
Kish: We're working with firms that are going to be taking cell phones and turning them into thin clients. You don't need all this Flash (the software) and all of these applications here. I don't use them.

The other reason that turns us into a thin client is I can take about 30 percent of the cost out of this by removing all the flash memory, which is where the applications are controlled.