Beyond the PC
Who wants to crunch numbers? What we need are appliances to do the job--and go online ...
Business Week cover story
It's the end of a long day of crime-fighting, and Dick Tracy is cold and hungry. After turning up the collar of his trench coat,
Detective Tracy climbs into his sedan and asks the voice-activated navigational system to tell him the best route home. He arrives
and plops down on the couch, and touches the ad on the screen of his picture phone for free delivery of the local diner's blue-plate
special. Just then, Tess Trueheart E-mails good news from her wireless phone: The rotten Sal Monella has been nabbed for selling
tainted hot dogs. Relieved, Tracy turns on the news--his TV automatically stores his favorite shows for convenient viewing. But
he's quickly bored and climbs into bed to read. Moments later, the ultimate crime-stopper is fast asleep, his paperless electronic
book cradled in his arms.
Sounds like another highfalutin vision of technology from the same gumshoe who gave us the high-tech wristwatch. But hold on.
All of Tracy's gizmos are available today--from the Clarion Auto PC to the InfoGear iPhone to the electronic book from SoftBook
Press. And they're just the edge of a digital tidal wave that will wash over the high-tech landscape, bringing us everything from
gadgets straight out of a comic strip to Internet-connected versions of everyday products such as TVs, phones, and fax machines.
''We're entering the consumer era of computing,'' says Donald A. Norman, co-founder of consultancy Nielsen Norman Group and a
leading apostle of so-called information appliances--simple devices that do one or two jobs cheaply and well. ''The products of the
future will be for everyone.''
That's a slap at the personal computer. But even Andy Grove and Bill Gates seem to know their companies' futures no longer
depend solely on the PC. Intel Corp. (INTC) is putting its muscle behind new chips aimed at low-power gadgets and is even
designing new appliances for the living room. And Gates, who believes more non-PC devices than PCs will be attached to the
Internet within 10 years, has Microsoft Corp. (MSFT) creating software for easy-to-use products such as car navigation systems,
set-top TV boxes, and electronic organizers.
Gates and Grove are right to think beyond the PC. The high-tech industry is on the cusp of a new era in computing in which digital
smarts won't be tied up in a mainframe, minicomputer, or PC. Instead, computing will come in a vast array of devices aimed at
practically every aspect of our daily lives. Unlike complex desktop PCs, these information appliances--following on the lead of
3Com Corp.'s (COMS) handheld Palm computer and Microsoft's WebTV--will be simple and convenient.
Think divergence instead of convergence. To become as ubiquitous as VCRs and microwave ovens, analysts say, information
devices have to be much simpler than today's PCs. Rather than rolling more features into computers, newer devices need to be
designed to perform only a few specific functions. After all, who needs a desktop PC that could land a spaceship on the moon if all
they want to do is send E-mail? ''The PC is so general-purpose that very few of us use more than 5% of its capability,'' admits
Hewlett-Packard Chief Executive Lewis E. Platt.
Now, everybody from startup to industry giant is answering the call. The resulting scramble could turn high-tech's pecking order
on its head. Until now, the PC was the only route to cyberspace--and PC makers had only to ride the Wintel standard based on
Intel chips and Microsoft software to get in on the action. The future won't be so easy. Winning in the digital-appliance business
will depend not on the latest geek-specs, like megahertz and gigabytes, but on identifying consumer needs--and satisfying them
with products that hide their complexity.
LOST CAUSE. Indeed, after a 20-year tear, the PC--one of the world's fastest-growing products--is already coming down to
earth. And swiftly. PC prices are plummeting, and unit sales aren't making up the difference. While PC shipments should grow
15% this year, that's down from the heady 35%-plus rates in the mid-1990s. And with prices falling, analysts expect PC revenue
for the industry to grow at an anemic rate--less than 5%. Meanwhile, market researcher International Data Corp. says Net access is
now 94% via the PC; but that number will fall to 64% in 2002, thanks to set-top boxes, Web phones, and palm-size computers. By
2002, more information appliances will be sold to consumers than PCs.
Gates's dream of putting a PC in every house may now be a lost cause. While 48% of U.S. homes now have a PC, analysts don't
expect that to rise above 60% because information appliances will take on many of the jobs now handled by the PC. That means
PC makers, for the first time, will have serious competition in cyberspace. And with the top five companies already selling more
than 50% of all PCs, even stellar PC companies may have trouble posting the go-go gains of the past. Dell Computer (DELL)
found that out on Feb. 16. That was when Wall Street pounded its stock after the company reported revenue for the fourth quarter
ended Jan. 29 rose 38%, well below its typical 50%-plus clip.
Not that the PC will disappear as the on-ramp to the Information Highway. For people with home offices or school-age kids, the
versatility of the PC is still hard to beat--especially with prices so low. ''We're rapidly moving into the post-PC era,'' says Paul E.
Horn, a senior vice-president and head of research for IBM. But ''the PC isn't going to go away any more than the TV made radio
go away.'' Indeed, analysts expect PC unit sales growth to remain in the low double-digit range well into the next decade.
''Consumers are pretty smart,'' says Steve Jobs, Apple Computer Inc.'s interim CEO. ''If for an extra 10% they can get something
that does so much more than some single-function device, they'll take it.''
Of course, that doesn't mean Jobs and other PC pioneers are standing still. Apple (AAPL), which made a major step forward in
ease of use with the introduction of its elegant iMac PC last year, is expected to unveil a slick-looking handheld Mac this spring.
Meanwhile, Microsoft has spawned a new generation of handheld products via its Windows CE technology, including the new
Jupiter design for mini-laptop PCs that run up to 12 hours on one charge. Vadem Inc.'s $999 Clio, for instance, appeals to road
warriors because the 3.2-pound device has a larger screen and is more comfortable for E-mail or Web browsing than 3Com's
popular Palm.
What's going on? Most people don't believe there's a compelling reason to buy cutting-edge machines. After years of being swayed
by claims that only the latest, most powerful machines will do, consumers are waking up to a new reality: Today's $400 PCs are
good enough for most tasks--especially connecting to the Net. Pushing the latest high-octane machine just isn't working. ''People
are realizing that whether you own a 300-Mhz PC or a 400-Mhz PC, it isn't going to change your life that much,'' says Alain
Couder, CEO of Packard Bell NEC Inc. ''That's scary for us. We need to get real.''
Such an admission would have been considered high-tech heresy two years ago. But today, there's a dazzling new spurt of
innovation in Silicon Valley. St. Paul Venture Capital, Flatiron Partners, and Matsushita Electric have earmarked $140 million to
invest in info-appliance companies. Nokia (NOK.A), Motorola (MOT), and at least five other phone makers are developing Web
phones. And HP (HWP), IBM (IBM), Sun Microsystems (SUNW), and Sony (SNE), among others, are preparing a host of
newfangled gadgets from palm-size scanners to the underlying chips and software that will power these devices. Meanwhile,
scores of startups are spinning out whizzy new products ranging from a countertop Web browser for the kitchen that doubles as a
TV and CD player, to a tiny gadget that health maintenance organizations will give chronically ill patients so doctors can check
their vital stats online.
NO TOASTER. It's not just this slew of gee-whiz devices that will make information appliances commonplace. Mundane
products already found in many homes will also get far smarter. Cameras, TVs, cell phones, and cable boxes are going digital,
making it far easier to add new features that let them take on jobs now done by the PC--including Internet access. By next year, for
instance, some fax machines will be made to work over the Net so you won't have to rack up long-distance charges to zip a letter
to London. And cell-phone pioneer Qualcomm Inc. (QCOM) will add ''microbrowsers'' to its phones to allow them to read online
data. Says Paul E. Jacobs, president of Qualcomm's cell-phone division: ''People think cell phones are more like toasters than they
are like PCs--but that's wrong.''
What's feeding this explosion of innovation? You guessed it. The Internet. Computer scientists have been predicting the advent of
information appliances for more than a decade. But now, the Internet has become a truly social phenomenon, with oodles of new
information and hundreds of innovative services added on a monthly basis. Consumers want information appliances ''to access
services on the Net,'' says Claude M. Leglise, who heads Intel's new home-products group. And more consumers are wondering if
they really need a PC just to get wired. ''I haven't felt any compulsion to buy a PC,'' says Robert Anderson, a nurse from West
Palm Beach, Fla., who is completely satisfied surfing the Net with his WebTV--and not at all envious of PC-using friends.
Consumers like Anderson won't suffer from lack of alternatives to the PC. That's because software and chip technology has
reached the point where it's possible to build inexpensive devices with enough memory, storage, and screen size to be useful. The
explosion of information appliances will, in turn, boost the number of Net connections in the home. By 2002, predicts market
watcher Jupiter Communications, 56% of U.S. homes will have a Net connection, up from 32% today. And more U.S.
homes--13.9 million in 2002, vs. 1 million in 1998--will have faster Internet connections, according to IDC.
MORE CLICKSTREAM. Translation: More people will spend more time online. In today's PC-centric world, cybernauts spend
up to 40 hours a month online, says Sky Dayton, chairman of Internet service provider EarthLink Network Inc. But by giving
consumers the devices to log on to the Web more often and more conveniently--say, to check the local movie schedule or even buy
a car--that could rise to 200 hours. ''That kind of clickstream becomes incredibly valuable,'' Dayton says, referring to the number of
Web sites consumers will visit or ''click to'' when online.
To reach the masses of tech-shy users, though, companies need cheaper and easier-to-use digital devices. That's driving a
fundamental change in how products are conceived. Instead of designing cool boxes and hoping they find uses, companies are
dreaming up services--and then building devices that can deliver them. What's more, these devices will let companies lock
customers into their services--and harvest rich new revenues from advertisers and E-merchants.
Take Alcatel. The French phone giant spent a year surveying media and telephone companies before designing a phone that offers
touch-screen Web access. They told Alcatel the phone had to show voice mail, E-mail, and faxes on one screen. The companies
also wanted a laptop-style color screen rather than black and white. And to help telephone companies subsidize the $500 price of
the phone, Alcatel (ALA) drummed up support from E-commerce companies such as Yahoo! (YHOO), Amazon.com (AMZN),
and others to buy links on the phone's startup screen. The argument: This placement could be as valuable as a spot on the
Windows desktop. By 2002, Alcatel expects to have sold 1.5 million WebTouch phones, which will be offered to consumers for
around $400 starting this September.
Online companies are just itching for ways to snag more users. Yahoo!, E*Trade (EGRP), and Sportsline.com, for example, are
eyeing new ways to deliver their services, particularly to smart cell phones. Doing business in Denver? Your phone could give you
the traffic conditions, or tell you whether there are seats available at the Nuggets game. GeoVector Corp., a four-person Silicon
Valley startup, even makes software that would let you point your phone at a restaurant to gather whatever info has been posted on
the local online Yellow Pages--say, a free glass of wine with the early-bird special.
Some online companies are doing more than scour the market for new devices: They're helping to create them. AT&T recently set
up a lab in its Silicon Valley research and development center to build prototypes of new kinds of gizmos, including handheld
devices that, among other things, could capture and play videos, or be controlled via voice. And online giant America Online Inc.
(AOL) is working with partners--including Sun Microsystems--on new products tuned to its service. One possibility: a sub-$300
set-top box based on Sun's JavaStation computer now sold to corporations, according to analysts. AOL plans to unveil these
devices, part of its ''AOL Anywhere'' strategy, by this summer. ''We're going to play a major role in this next generation of non-PC
connected appliances,'' vows Barry Schuler, AOL's president for interactive services.
At stake is customer loyalty. Consider the experience of Tom Benton, 38, of Claverack, N.Y. His engagement to his fiancee in
Mexico was straining his budget until he bought a device from Aplio Inc. that lets him make free phone calls over the Net. The
device, conveniently located next to the phone in his kitchen, is a snap to use. ''You just pick up the phone. It's natural,'' he says.
Now, his monthly bill is back down to $20 from a wallet-crunching $200, and the marriage is on.
A KITCHEN BROWSER. It's stories like Benton's that inspired entrepreneur Bob Lamson to go back into the kitchen. Lamson,
who made millions inventing a line of home breadmaking machines in the 1980s, has built a new gadget that merges a 9-inch TV,
CD player, and a one-touch Web browser into a contraption that attaches to the bottom of a cabinet. His company, CMi
Worldwide, will produce the black gizmo at a price of $800, with an additional $20 monthly fee for Internet service. There's also a
$1,500 to $2,000 countertop version that looks just like a small TV, with a 12-inch screen. ''More than 50% of [homemakers] are
not PC-literate--and they're big shoppers,'' says Lamson, who has already signed up appliance maker Salton as a distributor. He's
also talking with phone companies and online grocery service Peapod Inc. about supporting the gadget.
Kitchen gadgets and Web phone-screens won't be the only new cyber real estate. The TV, a fixture in 98% of U.S. homes, is an
obvious candidate. Roel Pieper, Philips Electronics' (PHG) top digital exec, points out that Americans spend 3.6 billion hours a
month in front of the TV, vs. 300 million for the PC. ''Capitalizing on digital TV is the next big thing in Silicon Valley,'' says
Michael Ramsay, the CEO of set-top startup TiVo Inc., whose backers include billionaire Microsoft co-founder Paul G. Allen.
General Motors Corp. (GM) is already working with TiVo to figure out how to deliver targeted ads.
Entrepreneurs and giants alike are tapping into a growing pool of chips and software aimed at info appliances. IBM, for example,
has devised a disk drive half the size of a credit card that can hold 340 megabytes of data--enough to store 80 full-length books.
The microdrive, due out this year, will cost approximately $350, but IBM expects the price to fall below $100 once volume picks
up in a few years. Meanwhile, startup iReady Corp. has created ''Internet-on-a-chip'' technology that lets manufacturers add Net
access to everything from fax machines to TVs for less than $10. Seiko Epson Corp. is using the chip to make smart screens that
can be dropped into fax machines or used as stand-alone Net browsers.
NO MORE HAMMERLOCK? Progress is also picking up in the critical area of software. Sun Microsystems Inc.'s elegant Jini
software, unveiled on Jan. 23, could become the lingua franca for devices ranging from coffeemakers to supercomputers. With
Jini, devices tell a network what they are--and what they can do. That way, an advertiser could create different versions of an
Internet promotion--say, a full video for an interactive TV vs. a one-line headline for a handheld gizmo--knowing Jini-enabled
devices would grab the right one.
Who's best positioned to make these cyberdreams come true? Intel and Microsoft are not sure bets. Indeed, no one company has all
the pieces in place--yet. Startups tend to have ideas and technology but lack marketing and distribution muscle.
Consumer-electronics companies are famously slow to adopt new technology and have to bridge decades-old divisions between
product groups.
But today's high-tech powers may have the most at risk. Since info appliances require inexpensive, highly focused technology,
Microsoft and Intel could have a tough time maintaining the high-margin hammerlock they enjoy with their current PC
technologies. As for PC makers, they'll need to do more than rush to market zippy new models chock-full of state-of-the-art
technology that consumers have to learn how to use. Says Philips' Pieper: ''The PC companies move at a higher speed of
innovation--and I'm not sure consumers like it. They'll have to slow down, and we'll have to speed up.''
For now, all are focused on getting into the game--especially computer companies. Industry stalwarts such as National
Semiconductor (NSM), disk-drive maker Quantum (QNTM), and modem and graphics board supplier Diamond Multimedia
Systems, are investing heavily in information-appliance businesses. HP recently unveiled its Capshare handheld scanner, which by
yearend will be able to wirelessly zip magazine articles through cyberspace. And Compaq Computer Corp. (CPQ) says it aims to
sell set-top boxes and Web phones.
A weak player in the PC era, Sony is scrambling so that it doesn't miss out on the post-PC age. The consumer-electronics giant is
preparing a slew of innovative products, including a digital picture frame that displays 50 different color photos, and a 250-person
software unit is working on smart home networks that will let your TV and stereo recognize you when you walk into the
room--and fire up your favorite tunes or shows.
Not all of these novel products will be blockbusters. But there will be plenty enough hits to make cash registers ring. Consider
Diamond Multimedia's Rio. The 2.4-ounce, pager-size gizmo can store and play songs downloaded to a PC in a format called MP3
that makes it feasible to download music of CD quality through the Web. It's like a tapeless Walkman, and Diamond (DIMD) has
sold 250,000 of the $199 units in just three months--and the Rio has become a major fad with music lovers. ''It's a viral kind of
thing,'' says Diamond CEO William J. Schroeder, who hopes to sell 750,000 Rios in 1999. ''A year ago, I didn't even know what
MP3 was!''
That's O.K. Because in the post-PC era, most consumers won't need to know--or care--how their information appliances work.
By Peter Burrows in San Mateo, Calif., with Andy Reinhardt in San Mateo, Heather Green in New York, and bureau reports |
