Elegant boxes may mean ugly future for PC makers
By Michael Kanellos
Staff Writer, CNET News.com
December 2, 1999, 11:55 a.m. PT
Elegant, inexpensive computing devices coming next year will bring a
touch of class to corporate desktops--and also present PC makers with a
new set of competitive headaches.
Small, stylized computers, such as the iPaq from Compaq Computer or
Hewlett-Packard's ePC, will give most customers the computing power they
need for $499, according to estimates, far less than the $750 business
systems customers are buying today.
The problem is that these machines, if they become popular, could lead to
the sort of low-ball competitiveness that has squeezed the consumer PC
market for the past three years.
The effects of price obsession in that market has been dramatic. Second-tier
manufacturers--and even former major players such as Packard-Bell--saw
their markets dry up. Top manufacturers and chipmakers, meanwhile,
experienced dramatic increases in sales; but the big price cuts rained on that
revenue parade.
"This is the other shoe dropping," said
Dean McCarron, principal analyst at
Mercury Research. "This happened in
the consumer market and look what it
did. It was just a question of who was
going to do it first."
It is still far too early to estimate how
the market will react to these new
devices. But proponents point to
Apple Computer, which experienced a
complete turnaround through the
creative use of colored plastic, image
and new technology.
But even if another iMac-like story
doesn't unfold, the market is rich with
possibilities. These new PCs will also
emphasize centralized management
and control, which could drive more
server computer sales and open the
door to ongoing service opportunities
such as application hosting, data storage or wireless deals.
"Today our traditional competitors are HP and IBM," said Jerry Meerkatz, the
vice president overseeing Compaq's Internet Access Appliance Group.
"Tomorrow, we will be competing, or collaborating, with Nokia and Philips,
or IBM and Philips." Deals will come with "implied exclusivity," he added.
Less is more has become the guiding mantra of both Compaq and HP in the
corporate desktop space. To users, these Internet appliances will function
exactly like a Windows-based PC. The changes will come in case design and
how the keyboard (or other peripherals) plug in. To IT (information
technology) managers, however, a Net appliance will be a PC with "dumb
terminal" characteristics.
HP's ePC, for instance, will come in a sealed case, making it impossible to
add more memory or change hard drives. For years, customers demanded a
case that could be opened, said Achim Kuttler, marketing manager for HP's
business desktops in North America. But when pressed, customers largely
admit they never use the option, he said. Sealing the case, meanwhile,
saves money because the PC costs less to make. Also, employees can't
meddle with the innards.
"In internal expandability it is stripped down," he said, adding that the ePC
will be "significantly cheaper than a regular [corporate] desktop."
Another feature of these new PCs is that the configuration--the specific
collection of hardware, software and drivers found in a PC--will be frozen, or
at least minimally changed. This will reduce the onerous and often
expensive "qualification" or testing procedures that corporate buyers go
through whenever new technology comes in the door. Both companies will
emphasize management and support software to centralize control over PCs.
For the manufacturer, these machines cost less to make and service.
"You've got overkill in technology" with current desktops, said Meerkatz,
which artificially inflates expenses. These computers will also lack "legacy"
technology, such as ISA slots and traditional connection ports, which allows
for smaller, less costly motherboards and cases.
Considering the existing price pressure today in the corporate market, the
gross margin on each appliance will likely be equal or better to what the
company gets now on corporate desktops. Compaq will also sell the systems
directly to customers, thereby reducing inventory costs.
Still, although gross margin per machine may not decline, the total number
of margin dollars derived from each PC will shrink, which means that
volume will be a key consideration.
Kuttler concurred. "Success is in volume," he said. "How many
products can you sell?"
The quest for huge volumes, though, has been part of the problem
in the consumer space. "The mix is shifting down," noted Roger
Kay, an analyst at International Data Corp. "In 1999 there was a
bloody battle in consumer [markets]. The same could happen in
commercial."
Competitors are seemingly waiting in the wings to see how this
evolves. Dell Computer, for instance, has designed a similar PC for
consumers. The company has not stated plans to bring these kinds
of PCs to a corporate market as yet, said Bill Peterson, a Dell vice
president, but it could.
Where else will profit be made up? Servers and side deals. If central
management takes off, corporations will need to buy IT departments
more servers to manage applications and upgrades, industry
observers have said.
Service possibilities abound as well. Qwest and HP, for example,
are "looking at the whole possibility of getting information
appliances to the end users," said Mike Weir, marketing manager for
business PCs in North America. "We want to be able to offer the
whole thing"--a situation where the "client" computers would be
preconfigured for the task at hand."
Nonetheless, HP will remain a hardware company. "We want to be
the people selling the pans, not necessarily panning the gold
ourselves," Weir added. "We have a model to make money on this."
Related news stories
• Compaq planning quick-and-easy Internet device October 29,
1999
• HP's Internet appliance really just a small PC November 5, 1999
• Compaq hopes iPaq jump-starts its PC push November 10, 1999
• AMD tries on new look with oval-shaped PC November 12, 1999
• Dell to weigh in on Internet appliances November 29, 1999
• Dell consumer PC shows focus on the Net November |
