Thin-client vendors feel PC price pressure

By John Cox
Network World Fusion, 3/2/98

Plummeting PC prices may force thin-client vendors to trim their prices in coming weeks, according to industry observers.

Analysts don't expect the lower PC prices to shut new terminals and network computers (NC) out of corporate networks, but they said companies should be able to get even better bargains on already inexpensive thin clients.

Several PC vendors are using low-cost processors from chip makers other than Intel Corp. to offer Windows PCs without monitors for under $1,000. Machines for the consumer market are being tagged as low as $800.

"Having these things advertised at $800 sets a challenge for us, even though customers pay considerably more for their final configured PC," said Lee Rainey, director of marketing for thin-client vendor Tektronix, Inc.'s Network Display Division in Beaverton, Ore.

Lower thin-client prices sound good to Microsoft Corp., which figures the prices could stimulate demand for its forthcoming Windows-based Terminal (WBT) Server. The multi-user version of Windows NT 4.0 is designed to serve multiple thin clients.

"We believe that for the Windows-based Terminal to be successful, it will have to be in the $500 range," said John Frederiksen, Microsoft's group program manager for WBT Server. "And they will be more successful as the prices come down."

No matter how inexpensive PCs become, thin clients will always cost less, said Michael Kantrowitz, executive vice president of Neoware Systems, Inc., a King of Prussia, Pa.-based thin-client vendor.

"In a thin client, you don't have a hard drive, expansion slots or expensive CPUs," Kantrowitz said. "They're simpler to manufacture."

At the same time, thin clients out of the box actually have more capability than the sub-$1,000 PCs, Kantrowitz said. That's because PCs have to be equipped with a network card, terminal emulation software to access host applications, and X Windows software to access Unix servers. That package can add $300 to $400 to the PC price, and users may still have to pay extra for a monitor, Kantrowitz said.

Thin-client proponents argue that the purchase price for a thin client, including network hardware and a portion of the remote server cost, is only a fraction of the total cost of ownership of a desktop system. Total cost of ownership also includes maintenance and deployment costs.

Thin clients come in two flavors: Windows terminals and NCs.

Windows terminals access applications running on multiuser Windows NT servers and display results of server-based processing. Prices usually start around $600, although Wyse Technology, Inc. recently slashed the price of a gray-scale Windows terminal to $349.

NCs are designed to download and run Java applications and access server applications. IBM's fully equipped Java NC - the Network Station Series 1000, with 16M bytes of RAM and a choice of Web browsers - costs about $800.

Thin-client vendors acknowledge the price pressure of less expensive PCs but are closemouthed about future plans. "We will continue to look at ways of making sure we're the most competitive offering out there," said Brian Boulay, project director, marketing, for IBM's Network Computer Division.

Regardless of which type of thin client they are interested in, users are expecting to see prices fall. "My intuitive feel is that Windows terminal prices will come down over time as competition and other things come into play," said Brian Boettcher, manager of systems services at Fastenal Co., in Winona, Minn. Fastenal is a beta site for Microsoft's WBT Server, which is scheduled for release around mid-1998.

"Even if PC prices fall to Windows terminal prices, you can't pack as much on a $500 PC or get the performance that you can with even a dual-CPU server and Windows terminals," he said.