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Your Replacement or Mine?

For desktop computers, something newish this way comes.
Doug Bartholomew, CFO IT
September 15, 2003

Although it seems long ago, there was a time when companies routinely replaced their old personal computers every three years and sometimes sooner. Now, with money tight and PCs powerful enough to handle most office tasks, companies are hanging on to them for four or five years and sometimes longer. So long, in fact, that it may surprise some to learn that the worldwide market for PCs is still a growth industry. True, projections have been trimmed, but IDC, for one, expects sales this year to outpace those of 2002 by 6.3 percent (in unit volume).

While companies no doubt enjoy the fact that they are able to spend less on PCs (see CFO IT's recent survey data), Roger Kay, vice president of client computing at IDC, claims that "purchases of PCs are being delayed, but if corporate profits come back in a couple of years, many companies will return to a three-year cycle."

Some enterprises continue to purchase new machines to keep up with changing business needs. This year, for example, the Bank of Montreal invested in 20,000 new PCs as part of an effort to improve customer service. The bank plans to use the new machines to run customer relationship management software that would have taxed the older models.

Even if computing horsepower is not a factor, capital investment in a fresh fleet of PCs can be put off for only so long before issues of service life begin to mount. Some disk drives, for example, have only three-year warranties and can be expected to incur problems after five years, reports Kay. "Older systems end up costing money to maintain," he says, "and the potential of data loss or intrusion increases over time."

In the good old days, makers of PCs could count on factors other than obsolescence to move merchandise. Significant new technology—be it the graphical user interface, the finally-big-enough hard drive, or the ability to multitask—had corporate customers eager to swap out the old for the new. In the absence of significant breakthroughs, computer makers today hope to win desktop sales with older ideas that have been refined and repackaged. Is either one worth the investment?

Announced last year with as much fanfare as a slumping industry can muster, the tablet PC is a pen-based notebook that weighs about three pounds and is priced from about $1,599 to $2,699. The most popular configuration, called a "convertible," includes a keyboard, which appeals to those who aren't ready to use the pen (or stylus) as the one and only means of input, and is useful for certain data-intensive applications.

Tablets, Take Two
Tablets combine the proven portability of a notebook or laptop with the continually unproven ability of computers to deal with handwriting. During a demo with a Toshiba convertible tablet PC loaded with Microsoft's handwriting-recognition software and operating system, the machine mistakenly read the word housing as housewifing. The word was written again, this time more carefully, in a very legible (to this reporter's eye, at least) longhand. But again, when converted to Microsoft Word, it came up housewifing.

When asked about this shortcoming, Andrew Dixon, group marketing manager for Microsoft's Tablet PC team, scoffed. "Sometimes it's hard for you to recognize your own handwriting," he says. "We've done a lot of work on handwriting-recognition technology, but it's certainly not perfect." And much of the software written for tablets doesn't hinge on handwriting recognition, but simply on using the pen to point and click.

Despite some software imperfections, and the related difficulty of becoming comfortable with a pen interface whether the machine understands your writing or not, some companies are viewing the tablets exactly as the computer industry hoped they would: not as specialty devices, but as straight-on replacements for desktop PCs.

"It takes a couple of weeks to get used to using a pen instead of a mouse," says Ed Sullivan, president of IBC, a distributor of industrial supplies and bearings. Based in Hartford, IBC is beginning to swap out its old PCs for tablet PCs. "We've got six in use now and more coming. We've changed our rotation of buying new PCs every three years to buying tablet PCs, so that everyone is working toward that technology," he adds.

But Sullivan is in a decided minority. IDC reports that despite Microsoft's marketing muscle (the software giant sees tablets as fertile ground for a special version of its Windows operating system), sales of tablet machines have yet to take off. "Tablets got a lot of support out of Microsoft's backing," says IDC's Kay. "Some enterprises are evaluating them, but there's not much pull for these machines." He figures that tablet PC shipments have been "in the tens of thousands" since their announcement last fall.

That means that growth may depend in part on tablets offering more than just portability. Howard Kamerer, president and COO of Bothell, Washington-based network-equipment maker Allied Telesyn Inc., says that while "the tablet PCs give you the best of both worlds"—that is, the portability and computing power of a notebook plus the convenience of a pen-based system—what matters most are the specific software applications that take full advantage of those capabilities.


In his case, that means using a "brainstorming" application called MindManager, from Mindjet, a Larkspur, California, software company. The program enables people to scrawl their notes on the screen with a pen and then move them around or reorganize them any way they want, using the pen and various icons for commands.

While Kamerer admits that "tough economic times are not when companies have the money for a new technology, so mainstream use is going to take time," he is nonetheless introducing the tablet PC to Allied. He plans to convert managers and project managers first and then roll out the machines to the company's entire sales organization. "We'll give people a choice—the tablet PC or the laptop," he says. "I think a lot of them will want a tablet PC."

Another tablet PC user is Richard Goldberg, chief technology officer at dataDOC Technologies Inc., a Chicago-based consulting firm that helps health-care companies with process improvement. He uses the tablet PC and MindManager software to visually map out clients' processes. "The ability to map out processes visually in pen mode as we talk is phenomenal," says Goldberg. Some physicians, he says, are starting to employ tablet PCs to chart patients' records. "We are finally moving toward a computing device that truly allows the human input to be more natural," he adds. "There's no question that this is the next notebook PC, but adoption of this technology may not happen overnight." That seems like an understatement, but if PC budgets pick up as Kay predicts, tablets may get serious attention as sensible PC replacements for any employees not completely deskbound, says Microsoft's Dixon.

Is Thin Finally In?
While tablets combine some familiar elements in a new form, the other trend in desktop computers is a straightforward rehash of an idea put forth by Oracle chairman Larry Ellison back in 1996. The idea, then and now, is that a stripped-down, "thin-client" machine can serve as the PC equivalent of a telephone—that is, a device that does little more than provide access to a central network, where all the software and data reside.

Ellison's concept, which he dubbed an Internet appliance, failed to catch on. Only a small number of thin-client machines were sold, primarily for limited vertical applications such as handling reservations, performing airport check-ins, or processing forms. With PCs cheap and able to do more, most companies saw little reason to rock the boat.

Despite their earlier belly flop, thin-client machines are back and winning new converts. One of their biggest attributes has proven to be the lack of PC amenities: with no hard drive, no floppies, and no CD-ROM players, they are less likely to malfunction and are easy to manage—particularly from an employee-abuse standpoint, as they make it very difficult to download music or copy company data onto floppies. And CIOs love thin clients because their total reliance on servers makes them far less likely to be affected by computer viruses. That also slashes administrative costs such as help-desk requests and software installation.

According to IDC, sales of thin-client devices are on the uptick, increasing 18.8 percent last year and projected to grow at a 15 percent clip this year. Even so, these machines represented little more than 1 percent of all PC sales in 2002. And some makers of thin clients have begun branching out into other product areas, in search of faster growth.

PCs may be cheap, but thin clients are cheaper still, usually priced from $300 at the low end to $600 at the top end, a substantial savings over a conventional PC and a near-giveaway compared with tablets. One company, Hollywood Entertainment, bought 3,500 thin clients and installed them with no added IT staff, for a net savings of $7 million right out of the gate, says Michael Kantrowitz, chairman and CEO of Neoware Systems, a King of Prussia, Pennsylvania-based manufacturer of thin-client machines. "Companies want to know how they can do more with less," says Kantrowitz. IDC's Kay agrees. "There is a very good financial argument for having thin-client computing today," he says.

Thin-client computers may be outside the mainstream, but that doesn't bother Steve Starkey, CIO at Ardent Health Services, a diversified health-care provider. With its main office in Nashville, Ardent is in the midst of replacing PCs with thin-client computers for some 3,000 employees at 28 hospitals, one physician group, and an HMO. The company's strategy is to acquire hospitals and provide them with centralized management services.

Starkey likes the ease of centrally managing the company's fleet of desktop machines. "If we want to change to Microsoft Outlook 2003, we can do it via our central server, and it's automatically out to the users," he says. "Hospital-specific applications are complicated and difficult to roll out, but this technology makes it easier. It certainly lowers the total cost of ownership of these systems, and we don't have to replace them as often as we would have to if they were full PCs."

Doug Bartholomew is a Berkeley, California-based writer and former senior technology editor at IndustryWeek.




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