NCI turns two -- where's the company headed now?

Does the continuing price drop of PCs coupled with the network computer's slow acceptance mean a new direction for NCI?

By Stephanie Steenbergen, SunWorld staff

May  1998
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There are significant new developments regarding the RCA NC mentioned in this story. See our sidebar for the update.

San Francisco (May 1, 1998) -- On May 20, Network Computers Inc., a wholly owned subsidiary of Oracle Corp., will celebrate its second birthday -- and these past two years haven't exactly been smooth sailing. Where does NCI stand now?

Leadership of the company, first of all, has been one major change. Two of NCI's top executives jumped ship. Jerry Baker, NCI's former CEO left NCI because, after two years of developing its technology, NCI now needs a business-focused manager, NCI spokesperson Randy Brache says.

David Roux, Baker's replacement, will retain his post as executive vice president at Oracle in addition to assuming the role of CEO at NCI. Roux was the first chairman of and still serves on NCI's board of directors. Roux managed the merger between NCI and Netscape Communications Corp.'s Navio Communications Inc. in July 1997.

According to Brache, Roux has a well-staffed organization at Oracle that can more or less run on its own. "Roux's day job is at NCI," he says.

Wei Yen, former head of Navio, stepped down from his position when the Navio merger took place. Brache cites his reason for leaving as, "a pre-agreed-upon arrangement made before the merger."

Has the management shakeup resulted in a shift in NCI's strategy? Brache says NCI has not changed focus. The company is still pursuing the same two markets: corporate and consumer. "The consumer side is split up in two sides. One is a retail product and the other side to it is something that's more subsidized, like a cable set-top box." NCI creates the software for set-top boxes and NCs, but does not manufacture the hardware for either.

"[NCI's] focus did change," says Zona Research Vice President Greg Blatnik. "They really shifted to a focus on the commercial market last year. They had these grandiose ideas of selling millions of these [NCs]. They thought there was a huge amount of business. Larry [Ellison]'s mother got up and said PCs were too complex for her. The focus has changed to consumer products."

That was then...this is now
When NCI began, Larry Ellison, CEO and chairman of Oracle Corp., called the market for NCs and accompanying software "explosive." At the time of NCI's formation, the average selling price of a personal computer was just above $2,000.

For businesses and consumers alike, the purchase and continual upgrade of a computer was considered cost-prohibitive. NCI hoped to make a splash in both corporate enterprise and consumer markets with software for not-so-dumb NCs costing approximately $500.

The NC has been defined by NCI as an "easy-to-use, affordable device that allows everyone to communicate through e-mail, access information on the Web, conduct electronic commerce, and run software applications such as word processing and games -- all through the network." But Ellison seems to have greatly relaxed the initial definition of an NC. At a recent press event, Ellison defined the network computer as, "a browser that runs Java."

Blatnik feels this definition is a bit simplistic. "If Java is the differentiator, NCs really have to have Java widely available. And I don't think that that is really the case," he says. "It takes a huge amount of performance on the client side to run a Java application. It may also take a fair amount of memory. These two factors tend to weigh against [the] NC being a thin client."

Sean Kaldor, an analyst at International Data Corp. who specializes in consumer NCs, described NCI's evolution: NCI first attracted consumers with its promise of extremely low purchase price. Then it targeted corporations with promise of lower cost of total ownership (cheaper to maintain and upgrade).

However, as PC prices began to drop, NCI then touted NCs as a cheap way to perform certain specific functions that wouldn't require a fully equipped PC. According to Kaldor, terminal replacement was NCI's next focus, but Windows-based PCs have attacked that segment. Kaldor agrees that NCI is "really focusing on cable now. NCI is trying to sell a server application, DTV Navigator, that runs on set-tops."

How well will NCI sell DTV Navigator for cable set-tops? "NCI shows promise so far," says Kaldor. "A lot of this is execution and salesmanship."

A look at NC consumer products
Early this year, NCI announced that sales and demand of its first consumer product, the RCA NC, exceeded predictions of both companies. According to NCI, the product's consumer-friendly features and RCA consumer brand recognition are the main factors in its initial success.

But when asked for an update, James Harper of RCA says, "This is a bad time to write about the RCA NC product. There's going to be tremendous change in this program, and it's not going to be anything we're going to be in a position to talk about."

NCI's Brache has a different response: "The product (RCA NC) is still out there, and you should see some new and exciting stuff coming in the next 12 months or so. RCA is still a very strong partner of NCI." (As it turns out, RCA's Harper was right. See our sidebar for the update on what's happened to the RCA NC since this story was posted.)

A U.K.-based computer company, Acorn, also manufactures NCs. "Acorn sells only a small number of NCs directly -- about 5,000 per year," says Steve France, senior marketing manager at Acorn, "and these are into niche markets in education, mainly in the U.K. and Europe. This has only been running for a short time, so the number is our forecast."


NCs in the enterprise
Acorn produces both a home and a corporate NC. France says, sales of the two are, "a roughly equal split between network-enabled (corporate) and modem-enabled (home) boxes."

France says, "The NC is going through its definition phase just like any other product. It started as a single generic device and is now blossoming into a multitude of products all aimed at different applications."

According to France, the best way to describe the NC's current evolution is to look at the automobile. "It started with a Model T, in black," he says. "Now you can have a variety of models targeted at sports, comfort, and off-road, and in virtually any color you like."

And with the NC, "We are seeing opportunities in screenphones, home banking, Web-on-TV applications, and a number of others," he says.

Companies planning to purchase large quantities of computers administer many tests to determine which computer and which operating system will best meet their needs. NCs have added another dimension to the decision. Prior to NCs, the decision was only "which type of PC with which type of software?" One representative from NC manufacturer Accton says "it usually takes companies six to nine months to decide [whether to go with PCs or NCs]."

Accton's NCs are sold to a company called DLT. DLT is a systems integrator for NCI. Its installations of NCs are usually around 1,000 units per customer.

NCI's Brache also cites companies' deliberate testing of products as one major reason for NCs slow absorption into the corporate market. "Corporate uptake takes a lot longer," he says. "IT departments do a lot of due diligence and trials until they actually adopt a new technology. It usually comes in four phases: first comes evaluation, then comes trial, then early deployment, and then large scale deployment. No one's in the last two phases."

Says Brache, "I think everybody, including Sun, IBM, and Microsoft with their Hydra stuff, are all in this trial stage. Once they (corporations) put that into their strategic planning. I think in the next few years you'll see the corporate market take off."

IDC's Kaldor however, holds a contrary position. He says, "it's not even a question for most companies." For companies who are on the edge of deciding NC or PC, "if they have an implementation for 500 or so [systems], they're just going to get a PC," he says. Why? Kaldor cites the cheap, ubiquitous nature of Windows-based computers.

What about Sun's JavaStations?
Because it seems NCI's focus may be changing from the corporate to consumer world, does this mean Sun will need to reevaluate its NCs? Sun's JavaStations were released commercially last month. Most who are willing to speculate say it's too early to measure.

Steve Tirado, director of product marketing for the Java systems group, assures that Sun will continue to manufacture JavaStations. He says, however, that on the consumer front Sun's Java division is concentrating on enabling technological devices rather than manufacturing them. "We're going to promote Java in every personal device possible," he says, "When it comes to things like hand-helds and set-tops our strategy is to enable other companies to do that."


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Update: RCA dumps its NC-based set-top

San Francisco (May 7, 1998) -- RCA quitely pulled the plug on its NC-based set-top devices this week. RCA has issued recall notices to all users of the RCA NC set-top devices and has offered full refunds to its purchasers.

This news follows a decision by NetChannel, RCA's Network Computer Internet service provider, to shut down its Internet TV service. This decision cuts off about 10,000 users.

"On May 3, NetChannel service to the RCA NC was discontinued," says Jim Gustke, NetChannel's marketing manager. "We had a subscriber base that was much lower than what we'd projected in our business plan," he says, adding that it was a mutual decision.

AOL recently announced plans to purchase NetChannel. According to Gustke, "NetChannel will be absorbed into a broader initiative in AOL called AOL Anywhere."

This should come as a blow to NCI which provided the software for the NC-based set-tops. NCI's spokesperson says the company is not disheartened by the announcement. "In the big picture, it's not going to majorly impact us," says NCI's Randy Brache. He views it as only a minor setback. "It will take us out of retail temporarily. It's good that AOL has entered this space. [AOL] brings a tremendous amount of clout. We hope one day that we can work with AOL."

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