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TECH TALK: The Network Computer: What Went Wrong

September 30th, 2004 · No Comments

One of the most detailed analyses of the reasons behind the failure of Ellisons vision of the network computer (NC) comes from Bhaskar Chakravorti in his book The Slow Pace of Fast Change. This is what Bhaskar writes:

For an answer, we must recreate the qualifying conditions for an NC-favorable endgame. Consider four crucial parties:

  • Buyers: demand-side players who decide to purchase PCs or NCs for the department
  • Users: demand-side players who work in the department
  • The NC coalition: supply-side players from Oracle, Sun and IBM
  • OEMs: supply-side players who manufacture PCs

    Choice Factors for Buyers
    Being responsible for buying the equipment used by the employees in various departments, the buyers were motivated by the various applications that the computers would facilitate. The other major motivator, as well as constraint, was the budget outlay necessary to meet the department’s needs for computing. Buyers would also be motivated by the need to keep systems service calls under control.

    Expectations about the choices of buyers in other units or firms with which this department interacts would also play a role. It is important to maintain compatibility to smoothly communicate or exchange information. The expectations about what others are buying also drives expectations about the software and support that would be available from the providers.

    In larger corporations, the computing architecture used a client-server model configured with the PC as the client. Any change in the client device would have required upgrading the capabilities of these other components of the system. This would be a distinct constraint to adopting an alternative to the entrenched status quo; the costs in the existing network and servers were already sunk. Change would require the activation of a new buying process for these other parts of the information technology infrastructure.

    Choice Factors for Users
    Users are, in general, motivated by the desire to do their job without having to relearn how to use a device or get used to new software or interfaces. They would usually prefer the attributes of the PC over those of the NC since they do not bear the direct costs of purchase. The PC gives them the control and flexibility to utilize a vast amount of computing power independently. With a PC, the user can run programs with minimal reliance on connection to a wider network.

    Choice Factors for the NC Coalition
    The coalition was motivated by the desire to supplant the PC with the NC. However, for each coalition member, the degree to which it would be willing to invest in selling NCs was constrained by several other factors. The NC applications and operating system had not sufficiently matured. There was insufficient market impetus for their development at optimal scale. With the Internet and e-business initiatives emerging as the single biggest attention-grabber for executives at Oracle, IBM and Sun, as well as their most demanding customers, the coalition’s marketing and sales resources were feeling constrained.

    Choice Factors for the PC OEMs
    A critical constraint governing the PC OEMs’ choices was the PC industry structure. When the NC was being launched, the PC had become more of a commodity, with relatively low entry barriers into the PC manufacturing and assembly business. Among the so-called tier-one OEMs, there was intense competition for the high-end PCs. A similar pattern existed among lower-end PCs as well, which were continuing to take potential customers away from tier one. This dynamic was reinforced by a highly competitive component-manufacturing industry serving the OEMs.

    The combination of easy entry into PC assembly, increased competitiveness, and standardization resulted in a diminished potential for product differentiation across different brands of PCs. Much of the motivation among PC OEMs was becoming focused on taking costs out of the system. The OEMs were being pushed further in this direction by the competitiveness among component makers, by the continued streamlining of production and supply-chain processes, and by the simplification of the distribution model.

  • Bhaskar summarises: The NC’s primary point of value had been focused on the notion that it was a less-expensive alternative to the PC. The nature of the choice factors driving the highly competitive PC industry had effectively resulted in a closing of the price gap. The PC industry had de facto neutralized the NC’s differential value proposition through its own internal competitiveness across PC brands. Buying behaviors were structurally incapable of changing over to the NC in the way it was positioned. The lower-cost-positioned NC was not on course toward its intended endgame.

    Tomorrow: Information Appliances


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