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NetPCs are coming; who'll buy?

video Some hard questions need to be answered before vendors begin pushing the machines as the next, great business PC.

Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
Brooke Crothers
4 min read
"helvetica"="" size="-1" color="#CC0000">video The Net PC is coming. That was made perfectly clear yesterday when 12 of the largest computer vendors in the world announced that they plan to ship these newfangled corporate computers later this year.

But some hard questions need to be answered before Intel (INTC), Microsoft (MSFT), Compaq (CPQ), and the rest begin pushing the machines as the next, great business PC.

For example, who will buy the Net PC? Michael Dell, speaking at PC Expo, said a lot of Dell's customers are not interested in the


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Net PC but want a full-featured PC with better management. "A lot of our customers are saying they want hold on to their PCs and just make them more manageable," said Dell.

Gateway 2000 (GTW) agrees. Gateway just did an extensive survey of many of its largest customers and found that many are not interested, according to a Gateway spokesperson.

So many pressing questions remain: Is this truly the evolution of the PC or, rather, is the PC devolving into something much more simple, akin to the mainframe terminal of old? Where will the Net PC's function and market really lie? Also, since the Net PCs from all the vendors are similar--they're all smaller, cheaper, and easier to manage than traditional business PCs--how do you distinguish one vendor's offering from the other's?

The answer lies not in the Net PC itself. The dumbed-down terminal is merely becoming symbolic of the big changes that may be taking place at the "back end," the corporate computing back rooms that house the big PC servers.

Here the server computers will take on many of the roles of the traditional mainframe computer, and it is here where many of the vendors will try to differentiate their offerings.

"Do you think [PC manufacturers] can make a lot of money off Net PCs? I don't think so," says Bruce Stephen, an analyst at International Data Corporation (IDC), a marketing research firm in Framingham, Massachusetts, referring to the fact that many of these Net PCs are expected to be too cheap to generate large amounts of revenue.

Stephens believes that what the Net PC really stands for is "fat servers." In other words, because the Net PC is expected to be a relatively dumb PC, the intelligence will shift to the bigger , and undoubtedly expensive, server computers which will become the "brains" of all the Net PCs connected to servers.

This is where Compaq, Hewlett-Packard (HWP), and IBM (IBM) will make money, according to Stephen.

Indeed, Intel is pointing the way. Intel ran its entire Net PC demonstration yesterday in New York on an Intel-branded server computer. The server did all the tasks that have been traditionally done on local PCs. The server woke up (turned on) all the Net PCs on the network, then installed the operating system and a full suite of applications.

You can bet servers from all the top-tier vendors will do the same. Moreover, these server computers can do a lot more. They will be able to lock out a user from their PC and, if necessary, run all software directly from the server.

Companies like IBM, Gateway 2000, and Mitsubishi made it clear yesterday that all their Net PCs will come with a host of new server-centric technologies, which allows the server to take over many of the traditional roles and the intelligence of traditional PCs.

The companies also plan to make money servicing these big servers. "It's like the auto industry where you make money on options and maintenance," Stephen said. Executives at Zenith Data Services, in fact, made it fairly clear that they would be promoting integration and other customer services as part of their Net PC strategy.

The "fat" strategy actually comes from the Network Computer camp, which first promoted low-cost client devices as a way to sell back-end systems.

"It is a reaction to those who are promoting an alternative paradigm for very low cost of administration," said Daniel Kunstler, senior equity analyst at J.P. Morgan Securities. Those companies include Sun Microsystems (SUNW), who is actively promoting the NC as a way to sell their own back-end servers.

The transition to Net PCs could also take more time than some of the vendors' other rosy projections, which see Net PCs drawing in millions of revenue by the year 2000. Currently, only 4 percent of the installed base of computers can be managed centrally on the network, according to Roger Kay, senior research analyst at IDC. By the year 2000, only 39 percent will be susceptible to central control, a significant rise but still not a majority to justify replacing entire corporate networks. At that point, the majority of corporate users will still have the luxury of sitting on the fence.

At the same time, PCs are already starting to incorporate the features of the Net PC, added Kay. That could further cut into a discreet Net PC market. Why not, Kay mused, merely adopt the back-end system and continue to buy PCs?

As for the Net PC itself, the vendors are finding it difficult to differentiate one from another. For example, Hewlett Packard's Net Vectra, which will be one of the first Net PCs to ship, is distinguished primarily by a button to activate a screen saver and an easy-to-reach shut down button. Executives at Zenith pointed out that it is both "easier and harder" to differentiate on the Net PC platform. On one hand, PCs makers right now are really only differentiating on price. The Net PC gives them a chance to create a new competitive paradigm. On the other, there are even fewer design features on the Net PC to create comparisons.

Which, again, leads to the question, what's happening to the PC?

Nick Wingfield contributed to this report.