21st century technology: Desktop reshuffle

This year, we will once again see more power on the desktop as Intel continues to expand its processor development, delivering Pentium III processors with clock speeds of up to 900Mhz this summer, and rival AMD follows with its Athlon line. But the one size fits all era is over. As well as high-performance PCs, we will see smaller and thinner devices - either cut-down, small-foot print PCs designed for Internet access, or other specific-purpose, all-in-one PCs or real thin clients.

These new processors, along with Rambus technology and even faster and higher capacity disk drives, will deliver more power to the desktop platform, while the arrival of Windows 2000 will fuel a need for extra capacity.

Machines will need at least 64Mb of Ram and 2Gb of drive just to accommodate the system, plus a 300Mhz processor. With 500Mhz the stock choice today and top-end clock speeds likely to break 1GHz by the end of the year, this is not a problem for the PC vendors.

While this is a familiar pattern - the operating system driving a need for more power on the desktop and the availability of higher performance machines driving the uptake of new systems and applications - the undercurrents of the market are changing.

The PC market has, to a large extent, been driven by corporate buyers until now, but in future SMEs and consumers will play a much bigger role. According to market analyst IDC, it was a rise in consumer sales that balanced the fall in corporate shipments in the fourth quarter of last year. While Christmas was a factor in the rise of consumer sales and year 2000 issues led to the fall of corporate sales, corporate sales are not expected to recover their previous growth rates in the new millennium.

Andrew Brown, PC market analyst at IDC, says: "We expect corporate spending to pick up again, but more slowly. The corporate market is not totally saturated, but the SME sector is now the major area of growth. The life cycle of the PC is shortening and renewal rates are increasing in large companies. There are budget issues and large companies are waiting for new technologies to come along."

Besides Windows 2000, there is the looming presence of the thin client, and while it is not a major part of the desktop market today, thin clients and other desktop devices will play an important role in the future. It is partly in response to this trend, and partly because it is feasible now, that desktop PCs are shrinking. As well as having smaller footprints, they are being shipped with more integrated technology and fewer expansion bays. Flat-panel LCD screens are not cheap, but they are already appearing on many small-footprint PCs, and could be standard by the end of the year.

Product differentiation
Vendors are being compelled to look for new ideas and ways to differentiate their products as standard desktop PCs increasingly become commodities, with price and brand the primary considerations. Among the top five vendors, there's a growing sense of urgency over product differentiation.

Tony Reilly, head of marketing at Fujitsu Siemens, says vendors will emphasise benefits beyond the processor speed and memory capacity. "We'll see quieter and smaller PCs, and the amount of heat they are dissipating is also coming into play. Manageability and security issues will also have to be taken into account. One of the stumbling blocks of e-commerce is security and we'll focus on that because we believe we have strong attributes in hardware, access and data security," he says.

IBM is anticipating smaller, varied products on the desktop, according to PC strategist Nick Davis. "We're in a replacement mode. The people who can use the power of a PC have probably already got one. To go beyond that, we need a simpler device that everyone can use, and this is where IT and telecoms will come together," he says.

As well as thin clients, IBM expects more all in one devices with all the required functions integrated into a small-footprint box. The vendor is planning to launch its Edge of the Network range of products this month, featuring flat-panel displays and slimline keyboards similar to the Toshiba Equip 2000.

More of these types of products will emerge from other vendors. James Griffiths, regional product manager at Dell, says: "We're starting to get away from the hang-ups about expansion slots and bays. Most things people need are integrated, and that's driven down the footprint."

Casting the Net
At Compaq, there is an expectation of change on the desktop. The vendor will introduce its iPAQ Internet access device at the end of the first quarter, according to David Matthews, PC group product marketing manager at Compaq. Variations on the theme will follow. "In the next three years, the trend will be towards an iPAQ-type device. At the extreme, iPAQ is a legacy-free PC and hence its lower cost, $99 (£64), in the US," says Matthews.

"Given its simplicity, the iPAQ also costs less to make and to support. There will also be stepping stone products that have some legacy support. It's all moving towards a thin client model and deciding how much power you need in a particular environment."

Compaq has already entered the thin-client market, re-badging Wyse Windows Terminals, and while 95 per cent of sales are still standard desktop PCs, the thin clients are selling well, claims Matthews.

"Analysts are predicting that the newer types of Internet access device will take over the primary role on the desktop. Add to that the fact that there are newer ways of working as people become more mobile and there is a lot more fragmentation on the desktop."

This means less dependency on the processor. The iPAQ machines are meant to last a year and run on 500MHz Celeron and Pentium III processors. That may change as the latest chips arrive, but these devices don't need the fastest speeds.

Compaq has not taken its plans for thin clients any further yet, and IBM apart, no other top-five vendor has made a firm commitment to this market. IBM, while it sells thin clients, is promising to fight back on the PC front, and at the same time, the manufacturer is distinctly positioning itself as an 'ebusiness supplier'.

Most vendors don't see thin clients, Windows terminals or appliance devices really taking off for some time. Scott Dodds, director of sales at Acer, says: "I'm not sure if we are on the point of take-off yet. Acer recently launched a thin client product, but the market is still relatively nascent, and we are also involved in Internet devices and XC development. But I don't see desktops and notebooks dying out yet."

It remains to be seen how many Internet device-type boxes will make it onto the desktop this year. Many of the emerging small footprint integrated PCs will be sold as internet access devices. But there is also competition from the set-top box and other access devices such as smart mobile phones and mobile PCs with integrated communications. Apple has proved with its iMac that a machine that is primarily an Internet access device can sell.

Other products, based around PC or thin-client technology will be adapted for specialist use. Thin clients have already been tailored for videoconferencing, and vendors are believed to be working on designs with built-in projectors. They presumably plan to follow Apple's lead with video and DVD in the consumer market.

Whether it is to access the internet or to run a specific application with minimal management overhead, there is recognition among resellers that users are looking at a different kind of desktop device. Simon Walsh, marketing director at distributor Tplc, says: "There is a different type of desktop appliance now. In the next couple of years, there will be broad acceptance of multiple plug-in appliances that are used to access Web based services and full blown applications rather than the traditional PC client."

Thin clients are already penetrating specific areas. They are currently used most in the call centre, where operators basically key in data and don't need the added complexity of local disks and control over device management. Davidson Baron, thin client manager at Citrix distributor KNS, claims thin clients are being adapted and sold for different applications.

"They're making it simpler to do things like video conferencing. We're shifting from identikit boxes, and users will be able to buy different devices to suit their purposes," he says.

David Allison, workgroup products manager at Sun Microsystems, says while Sunray thin client terminal customers use specific applications, they don't buy the thin terminals because of the application alone. "The customer is attracted by the ease of maintenance and the low cost of ownership. There are no disk drives, no fans and no moving parts. We can offer a five year warranty and it costs only £350 in the first place," he says.

Michelle Gibson, director of reseller Point to Point, says the real appeal of the thinner device lies in its low cost and speed of implementation. "We recently implemented a 350-seat system based on Netier thin clients and Citrix for a call centre which had bespoke applications and needed to implement on a very tight timescale. The only way to do it was by using thin clients."

Gibson sees more fragmentation of the desktop device taking place. "Now that we have application service providers (ASPs), it will have to be tailor-made. Users who take Word from an ASP will have Word optimised boxes, although that is probably a long way off as many organisations are still learning what they can do with thin clients, still nailing down their desktops."

Tom Offutt, vice president of sales and marketing at Netier, believes the need to accommodate legacy applications, at least in the short term, will drive thinner devices on the desktop. "Citrix and Microsoft Terminal Server have limitations when running a DOS or even a 16bit Windows application. They take too much resource at the server."

Many unique devices will be designed to suit specialist markets, says Eric Grayson, central Europe director for thin clients at NCD. "Thin clients will replace a portion of the PC market - in application hosting over the internet, for example. They should be seen as functional units for access and display to the applications," he says.

Dave Mills, EMEA director of marketing for Windows terminal vendor Wyse Technology, expects rapid growth of thin client devices, but also sees the uptake of other types of devices. New players entering the desktop market will be the end result of that."All companies want is instant information from 'the network' to make knowledgeable decisions. How that's achieved doesn't really matter, it's the reliability and validity of the data," he says. "The display device could be a PC, thin client, palm, CE or mobile phone. The market will decide on the best access device."

Given time, 3Com, Psion and Nokia could join Wyse, Netier and other thin client vendors in competing for space on the desktop.

A mixed bag
Dell has finally made a real impact on its rivals. It recently overtook Compaq as the number one PC shipper in the US, and is breathing down Compaq's neck in Europe. Compaq has reacted by providing customers with online ordering options and effectively creating an agency model for its channel. It is a change of heart that has not been very well received by resellers.

IBM and Hewlett Packard have also introduced Web based ordering and direct shipment schemes. Only one of the top five vendors - Fujitsu Siemens - operates a totally indirect model for its Intel-based systems. This is a tactic Acer is also adopting as it attempts to re-enter the branded PC business. The Taiwan based company already claims to be the third largest PC producer in the world under numerous OEM agreements.

Small direct vendors, too, have been performing well, especially Tiny and Mesh. For its part, Gateway 2000 has switched from a 100 per cent direct to a hybrid model. This may be the strategy that every vendor adopts. Even Dell has some reseller partners, and Compaq won't completely desert the channel. Acer has its OEM business, while Fujitsu Siemens has direct sales in the corporate market, although all business is fulfilled indirectly. As a result, the role of the reseller in the delivery of products and services is changing.

"We don't agree that there is no value in the channel anymore. Ecommerce has a place, but we believe we are moving towards the smart channel," says Dodds.

Distributor roles are also changing, says Alice Smitheman, general manager of PCs at Computer 2000. "There's a single price point and any service after that is chargeable." This principle applies to every service, she declares, from stock and delivery, to configuration and testing.

Smitheman believes distributors will become service providers, handling the logistics while the vendor concentrates on manufacturing and branding and the reseller on consultancy and installation.

Conclusions

• The desktop market is growing at about 15 per cent per annum in the UK and western Europe, but there is little or no margin in the products themselves for the channel.
• Smaller footprint desktops and all-in-one devices with little or no expansion capability will be this year's new attraction.
• The corporate market is slowing while SME and consumer sales are booming.
• Thin clients are making an impact in specialist sectors such as call centres.
• Fragmentation of desktop product lines is expected as vendors try to differentiate.
• There will be more direct sales, but other vendors are sticking to channel only policies. Distributors are becoming fulfilment partners.