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Low-cost networks, cheap computers and Java offer a critical challenge to Microsoft's domination of the PC business

By Neil Munro

Just as Microsoft's desktop software undercut the market for expensive mainframe computers, many infotech companies expect their new, low-cost network computers will undercut Microsoft's dominance of the desktop computer market. The virtue of network computers - dubbed NCs - is that they use the nonproprietary Java language, high-performance computer servers and communications networks to share centralized computer processors, memory and software among a business's many employees.

But this approach strikes at the heart of the business plan adopted by Redmond, Wash.-based software giant Microsoft, which licenses its software to one user at a time. This ensures that a company must buy one copy of each software program - such as Windows 95 or Office 97 - for every computer-using employee expected to run that software - even if each employee rarely uses that particular software program.

"The pricing models [must] change with this new [NC] paradigm ... and that is what worries Microsoft most," said Tim Hoechst, chief technologist for Oracle Corp.'s government division, based in Redwood Shores, Calif. With Java and NCs, employees "only have to pay for the software that they use," he said.

Oracle, one of the original proponents of the NC technology, stands to gain because sales of its networking software will accelerate if NCs spur use of the Internet. Similar calculations motivate its NC allies, which include browser developer Netscape Communications Corp. and Sun Microsystems Inc., both based in Mountain View, Calif., and IBM Corp., all of which provide much of the computing power that animates the Internet.

The danger facing Microsoft was highlighted by a March 11 announcement that these four companies would unite behind a standard form of the Java language. The standard will help businesses mix and match the four companies' competing hardware and software products, without much fear that their technical differences will cause expensive glitches.

Also, a January report showed that the total cost of owning an NC, such as Sun's JavaStation, was roughly one-third less than the cost of owning networked PCs.

The study, prepared by the Gartner Group, a consulting firm based in Stamford, Conn., compared competing technologies being offered by companies such as Microsoft and the NC coalition of Oracle, Sun, IBM and Netscape.

According to the Gartner report, a networked PC using Microsoft's Windows 95 costs $10,218 per year. In comparison, the NC technology, sometimes called NC clients, should cost only $6,011 per year.

That margin would provide savings of $715,000 to $1.12 million per year to a company that uses 250 NCs instead of 250 networked PCs, according to the study.

THE REAL COST OF OWNERSHIP
Annual life cycle costs	WIN95 (Microsoft)	NC/Client (Sun Microsystems, Oracle, IBM, Netscape)	NC/Server (Wyse)	NetPC (Microsoft, Intel)
Purchase Price	$2,965	$1,670	$1,896	$2,663
Technical Support	$1,704	$1,481	$1,497	$1,536
Administration	$1,497	$669	$771	$828
End-user operations	$4,052	$2,191	$2,611	2,507
Combined annual costs	$10,218	$6,011	$6,775	$7,534

A parallel technology, pushed by a variety of other companies such as Wyse Technology Inc., San Jose, Calif., is basically an upgrade of older and simple X-class terminals. Gartner estimates these X terminal systems, dubbed NC servers, would cost $6,775 per year.

In response to the NC technology, Microsoft defended the PC, saying it "offered the highest level of price and performance, ease of use, compatibility and adaptability." Then it launched its own investigation into operating costs and unveiled the NetPC in October 1996, for delivery in 1998 or later.

The NetPC was jointly developed with Intel Corp., Santa Clara, Calif., and is a hybrid of the PC and the NC. It is intended to include a Pentium processor built by Intel, at least 16 megabytes of memory, plus a suite of connections and ports to connect to peripheral devices such as local area networks or printers.

This NetPC is backed by Intel, which builds the computer chips that run each of Microsoft's software programs, as well as PC makers such as Compaq Computer Corp., Houston; Dell Computer Corp., Austin, Texas; Digital Equipment Corp., Maynard, Mass.; and other PC makers.

However, the NetPC's operating costs still would come out at $7,534 per year, more than the NC's cost of $6,011 per year, according to the Gartner study.

Microsoft's second response is an effort to further reduce maintenance costs for its PCs. Dubbed the Zero Administration initiative, the effort will ease routine maintenance and upgrades to networked PCs. For example, Microsoft began developing a suite of software that would allow each Windows-equipped PC to automatically update its software, without the costly and time-consuming intervention of a systems administrator. Another planned software feature would allow the systems administrator to simplify management by barring any employees from modifying and customizing the software and hardware on their PCs.

On March 7, Microsoft released the results of a survey it had commissioned on the effectiveness of its new training software, called Microsoft Office Starts Here. According to a statement, the new software helped employees improve their use of Microsoft Office 97.

However, administration is only a small portion of the PC costs. According to the Gartner study, administering a networked PC costs $1,497 per year, double the $771 cost of administering an NC.

Microsoft has also attacked the NC, saying the NC's operating costs were underestimated because they excluded the cost of operating the NC's network and excluded the productivity loss that would come whenever the network went down.

The NC also creates compatibility problems for businesses, according to Microsoft. The NC "defines an entirely new type of device that specifies only the most basic 'common denominator' ... [and will] result in increased costs, less flexibility and fewer options for computer users," according to a Microsoft statement.

For example, the various companies that have allied behind the NC will offer different hardware, operating systems and communications technologies, creating compatibility problems for business managers, according to the Microsoft statement. Moreover, many companies already use Windows and would be reluctant to use NCs if they cannot use Windows, which explains why Microsoft has been reluctant to develop a version of Windows that would operate on a Java-based NC machine.

The Gartner study partly supports Microsoft's claims. The study concluded that neither NC's nor their much-needed support services are advanced enough to replace PCs, but are best used for limited purposes, such as at a call center where customers phone in for information about a product or service. Moreover, careful planning can cut companies' existing PC operating costs by 25 percent, according to the Gartner study.

"Don't throw away your PCs," warned Dave Cappuccio, a Gartner analyst.

That's a warning that Sun has chosen to exploit, by trumpeting its Project Rescue. The project uses software to run Sun's Java software on obsolete 486-class computers. Although the 486-class computers can be bought cheaply and linked together after buying Sun's JavaOS software for less than $500 per computer, industry observers don't expect Sun to push the effort, chiefly because corporate infotech managers don't want to take on the extra task of maintaining old 486s.

Project Rescue is just one of the replies that Microsoft's response has generated from Oracle and its NC-backing allies.

Oracle President Larry Ellison says the PC is too complex to be a sensible appliance for general use in the home or office.

A version of the NC software designed for companies' use will be delivered in April by Oracle's subsidiary, Network Computer Inc., based in Redwood Shores, Calif.

And as long as software developers use only the standard Java software language, companies will be able to freely exchange data and software across different hardware and software products, said Brian Healy, the server product manager at Sun. The NCs "will look different, they'll be in different boxes, they'll cost different [amounts, but] they'll run Java," he said.

Claims by Microsoft that the NCs are dependent on expensive servers and breakable networks are overblown, said Oracle's Hoechst, because most companies' PCs are already linked to outside networks by expensive servers.

"What everyone knows is that NCs will be less expensive to maintain than regular PCs, but the total cost of operating for any customer will depend on their [technical] environment and the type of use they are putting the machines to," said John Reilly, a spokesman for IBM Corp., whose entrant into the NC race is the $700 IBM Network Station.

"Overall, it is probably a little bit early ... to state definitively what the operating costs will be ... [but] we think that this is a tremendous concept for business customers of all types," said Reilly.