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NC confusion deterring corporate/consumer sales -- but market will build by 2001

IDC statistics gauge NC purchasing plans, compare growth potential to NetPCs

March  1997
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Boston (March 12, 1997) -- Despite all the hype around network computers, U.S. corporate customers are only modestly interested in buying them and may not yet understand exactly what they are, according to research from International Data Corp. (IDC).

"There's still a lot of confusion about what is a network computer," said Bruce Stephen, IDC's group vice president of personal systems research, during IDG's Directions '97 briefing this week. "[Information] doesn't really get soaked up and factored into peoples' buying processes for a while, so I think most companies are in an evaluation mode," Stephen added later.

Over the next few years, consumers are also expected to be bombarded with NC choices, ranging from smart telephones to Internet-enabled televisions. But if NCs do not catch on with consumers by the end of the decade, vendors could lose interest in the market, just as they did in interactive television, Stephen said.

"If this doesn't materialize on the consumer side within three years, the funding could dry up," Stephen said.

IDC defines a network computer as a low-cost, easy-to-use device that can access the Internet or a corporate intranet and perform a specific set of functions, Stephen said. These include NC clients, such as IBM's NetStation and Internet-enabled terminals from Tektronix Inc., as well as more consumer-oriented information appliances, such as Net TVs and Internet-enabled screen phones, game consoles, and smart handheld devices. Large screen PCs or PC-TVs, such as Gateway 2000 Inc.'s Destination, and low-cost PCs do not fall under that heading. Neither do NetPCs, due out later this year, which are essentially stripped-down PCs with no expansion slots. (See our new story Intel, Microsoft detail NetPC specifications".)

Even with so many types of NCs coming on the market, PCs will remain the leading way for users to access the Internet through 2001, Stephen said. The PC to NC sales ratio will be 30-to-1 this year, shrinking to about 3-to-1 by 2001.

On the enterprise front, in IDC's 1997 Global IT Survey, 12.4 percent of the 1,500 U.S. respondents said they plan to buy network computers by the end of this year. Another 7.4 percent said they plan to buy them by the end of next year, while 6.8 percent plan to buy them sometime after that. But 43.6 percent of respondents said they never plan on buying network computers, and 29.8 percent don't know whether they would.

"That to us spells some reasonable interest," Stephen said. But answers to other questions on the survey suggested that respondents may be confusing a network computer with any PC hooked up to a local-area-network, he said.

NC clients will vie with NetPCs in the enterprise market, Stephen said. NC clients are expected to lead, replacing existing X-terminals as organizations adopt intranets and increase use of the Internet. NC client shipments are expected to be 565,000 in 1997, growing to 6.7 million in 2001. NetPC shipments, in contrast, are only projected to be 143,000 this year and just under 3 million in 2001.

The total cost of ownership for NCs is still not clear, however, Stephen said, X terminals clearly cost less per user per year than networked PCs, US$1,565 per user for 25 concurrent users compared to $2,787 per user for 25 concurrent users. But NCs will require additional programming costs and retraining, as well as additional servers, he said.


What about the consumer market?
While the NC has a clear-cut role in the enterprise market -- terminals recast for Internet/intranet use -- their role in the consumer market is less well-defined, Stephen said.

IDC predicts NetTVs will make up the largest number of NC sales by 2001, when more than 12 million of the devices are expected to be shipped. The devices will include WebTV-style set top boxes, Internet-enabled cable television boxes, TVs, and direct satellite broadcast. But without high bandwidth to the home, NetTVs won't catch on with consumers.

"The problem here is high end-user expectation level," Stephen said. "People's benchmark here is MTV," he said, referring to the flashy cable-television station that features music videos.

Internet-enabled game consoles are expected to be the second largest market, with shipments of 9.1 million by 2001. By 1999 or 2000, 'Net access will be built into most products, and online gaming will increase. Adding integrated communications will add to the consoles' production cost, however.

Internet smart handheld devices, including portable smart phones and personal digital assistants, are expected to be the third largest market, with shipments rising from a projected 2.4 million in 1999 to 7.7 million in 2001. Windows CE-based systems, which include a Web browser, are adding to smart handheld sales. Small displays and high connection costs could inhibit the market, but in the future users can expect color LCDs, smart cards, integrated modems, and voice recognition, among other features.

The market for Internet screen phones will take longer to heat up, with shipments staying under 1 million until 1999, when they will double. By 2001, just under 8 million shipments are expected. Future technologies include color LCDs, videoconferencing, and voice recognition. The devices will need broad distribution to succeed, Stephen said.

"What we need to see is a cell-phone like model," Stephen said, where service providers give the phones away free or at low cost.

--Sari Kalin, IDG News Service, Boston Bureau

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