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The next cheap thing

NComputing wants to find one of techdom's holy grails: a computer cheap enough for the world's PC-less masses.
/ Source: BusinessWeek Online

Stephen Dukker is talking a mile a minute, his excited voice filling the small conference room. He's fiddling with a laptop PC, some cables, and a tiny gizmo that looks like something you might pick up in the accessories aisle at Radio Shack as he prepares to demonstrate the wares of tiny NComputing Co.

"I have not been this excited about a company...ever," says Dukker, NComputing's chairman. "I'm afraid I'm going to have a stroke, I'm so excited!"

That's because Dukker is convinced NComputing has discovered one of techdom's holy grails: a computer cheap enough for the world's PC-less masses. Actually, not a computer. NComputing's gizmo — this one, the unsexily named L100 model — once attached to a mouse, keyboard, and monitor, can be used to tap into a PC somewhere else, across the room or across the continent, at a far lower cost than owning a PC yourself. Dukker's cost is less than $50 per user, vs. $250 for a cut-rate desktop PC. And if volumes rise as he hopes, that price could fall below $10. "Pretty soon, we'll have reached the point that the hardware is essentially free," says Dukker.

It's the return of the "thin client," one of Silicon Valley's most hyped concepts of the 1990s. Luminaries such as Oracle Corp. chief Lawrence Ellison and Sun Microsystems Inc.'s chairman Scott McNealy gushed back then over the idea that rather than own powerful PCs, Netizens could use these disk-less, processor-less "dumb" devices to access files and programs, stored on some remote server, via the Internet.

It kind of made sense. After all, the disk drive and processor in your PC make up about 40 percent of the materials cost. And who uses all that processing power, anyway? For many of us, a PC is for sending e-mail and surfing the Web. Unless you're designing rocket ships or flying them in some graphics-rich video game, you barely test a PC's limits.

Ahead of its time
But reality stepped in. With PC prices falling ever lower, customers had a choice between a full-fledged PC and an unproven thin-client device that cost just about as much. The few models that sold were priced over $500 after expensive software licenses were taken into account. So they never really caught on.

Today, all the attempts to reach the world's poor are focused on finding ways to make cheaper PCs. One of the most publicized efforts is the nonprofit "One Laptop per Child" program led by Massachusetts Institute of Technology's Nicholas Negroponte. The computer uses free Linux software rather than Microsoft's Windows and comes with a crank for people who don't have access to reliable power, or the means to pay for it.

But maybe, just maybe, the thin client was simply ahead of its time. Broadband connections, after all, are far more widespread today. And millions of people are comfortable with using Net-based software such as Google and MySpace. Now venture capitalists are starting to fund thin-client companies again, such as Teradici Corp. of Canada.

Even PC giant Hewlett-Packard Co. is ramping up sales of $300-plus thin-client terminals to companies that want to cut the cost of managing software-packed PCs. HP sees a day when consumers will pay a phone company or Net service provider only for the minutes of computing they use over a dumb terminal.

"This is not just a 'wouldn't it be nice,"' says Philip McKinney, chief technology officer for HP's Personal Systems Group. "There are a lot of things that are starting to converge that begin to make this make sense."

Here's where Dukker would beg to differ. He says it's already happening. Despite having no real sales or marketing effort, NComputing has sold more than 100,000 units since 2004, and is on pace to sell nearly that many in the remainder of the year.

Most are going to small companies and school districts in places like Brazil, Thailand, and Ghana. But interest is picking up with U.S. schools as well. Since stumbling upon NComputing's Web site, Tracy Smith, the director of technology for the Fremont School district in rural southeastern Idaho, has replaced 240 ancient PCs running Windows 98 with 80 NComputing devices.

"I haven't told our Dell salespeople I'm doing this. But that's 240 computers that Dell didn't sell me."

Making computers cheaper
O.K., so Dukker isn't turning the computer industry on its head just yet. But the role of change agent is one that is familiar to him. In 1998, Dukker's eMachines came roaring out of the gate to log $814 million in sales in its first year by selling nearly marginless machines that forced HP and IBM to get serious about sub-$1,000 PCs. Now that price band makes up more than 80 percent of all home PC sales.

But there are legions of potential customers for whom even today's rock-bottom PC prices are too high. Former eMachines executive Young Song started NComputing (he's now CEO) after discovering that the company was unable to entice some people with $299 machines that had been returned and refurbished. To tap that market, Song says, "I knew we needed a new technology."

He needed a new job, as well. Song left eMachines soon after Dukker was pushed out in 2001, when the company nearly went broke. In 2003, Song connected with co-founder Klaus Maier, who had worked for more than a decade on software that would let you divvy up an operating system and distribute it among many users over the Internet.

By late 2004 they'd converted that software into a cheap chip packaged inside a plastic enclosure with the circuitry to control a mouse, keyboard, and monitor. Thus was born the non-PC. Add in energy savings (the devices consume about 5 percent as much power as a PC) and lower support costs (there's little inside that can break), and you start to see the logic. Dukker will really push his case once NComputing completes a $20 million-plus round of venture financing. Co-founder Song says the goal is to sell one million units by 2008, and not just as PC replacements. NComputing is talking with makers of TVs, cash registers, factory equipment—anything that could benefit from offering a PC-like experience.

Sounds big. But then so did the thin client. And there is one big potential legal obstacle. NComputing's technology in effect lets as many as 30 people use a single copy of Microsoft's Windows. NComputing doesn't resell Windows but leaves it for customers to interpret whether they're covered by their Windows license.

Microsoft Corp. hasn't said exactly how it feels about that yet, but you can imagine the possibilities. There's also the practical consideration of depending on uninterrupted Internet service in the Third World to use one of these devices. Says MIT's Negroponte in an e-mail: "Please remember that in my world, connections are spotty."

( is a joint venture of Microsoft and NBC Universal News.)

So maybe Dukker's campaign is a bit of a windmill tilt after all.

"There's always been this idea that people have way too much computing power on their desks, but the fact is that people don't want to cede control back to a central authority," says Stephen Baker, a PC analyst for NPD Group. "History tells me this is likely to be a nichey product that doesn't get a lot of traction."

That's not dampening Dukker's spirits at all.

"We are a signpost that there's a new approach that could drive the cost of the client device to nothing," he says. "This could change the world."