Lean machine leads Oracle’s PC assault

Next year Europe will be the battleground for the biggest challenge to the PC in a generation: the network computer (NC). Depending on who you believe, it will either make computers as common as the TV, or go the way of the Sinclair C5.

The optimistic tough talk comes from Oracle chairman Larry Ellison, one of the prime movers behind the NC. His aim is to break the Micro-soft/Intel stranglehold on the PC market – the two companies have a presence in over 80 per cent of the 300 million home and office PCs across the world.

Ellison, whose company is supplying the software for the machines, is undaunted by the huge headstart Microsoft has. Earlier this year he called the PC “a ridiculous device”, and criticised it as “expensive and complicated”.

His dismissal of PCs has to be seen in terms of what the NC represents to Oracle. “Oracle is betting on black number seven – and when you do that you either clean up or crap out,” says one industry source. “The company must decide whether it wants to become a brand name like Microsoft or IBM. If it stays as a niche player, there is always the risk that it will be stamped on. But if it moves up it will be challenging some of the biggest players in the business world.”

Oracle will have to spend as much as 8m to promote the NC in the UK and up to 40m across Europe. Both estimates assume the company will use TV advertising. But for a consumer launch – scheduled for late 1997 – it will have to. And it is not just Oracle which is gambling on the NC, the hardware suppliers will all be on the market early next year – Sun Microsystems’ JavaStation, IBM’s NetStation and the Acorn Netsurfer.

The opportunity for the NC is obvious. PCs have significant drawbacks – not least being out of-date the moment they appear – they are complicated, overstuffed with technology and under-used. Observers estimate that only 20 per cent of the machines’ capacity is ever used by the average person.

All of these contribute to the most vexed issue – the cost of ownership. US-based research company the Gartner Group has calculated the average cost of running a PC in a business environment over five years at 29,250. It puts the amount of money spent on either hiring or contracting in professional IT services at 15bn.

The NC is trumpeted as the answer to these problems. It is a no-frills PC with no hard drive or places to store software. It can be plugged into any phone line and the makers want it to be as ubiquitous as the phone.

But the main selling point is the lower costs involved with both buying and owning an NC. The machines will sell for about 800 compared with 1,500 for a PC and have running costs as low as 6,000 over five years.

When Oracle and Sun Microsystems first announced their plans last year, the idea seemed an exciting one that had a serious chance of making a dent in the Microsoft/Intel dominance. But not everything is running smoothly.

The price of the NC has risen significantly. When Ellison first talked about the machines he said they would cost between 300 and 500. Oracle’s UK marketing director Nick Barley maintains that Ellison’s figures are not hyperbole.

“An NC can be built and sold for this price. The reason the prices are higher is because hardware manufacturers are adding functions to the machines,” he says. But the price rise does rob Oracle, and the other players, of a main plank of their marketing – the NC will still be cheaper yet not as cheap as they had promised.

This price problem has been compounded by the PC players hitting back. Microsoft is funding the development of a lower cost streamlined PC – excluding functions that are hardly used. It is called the Net PC and will be out next year priced at 1,200, only 400 more than the NC.

Barley counters by saying that the Net PC is not simple enough to entice the 84 per cent of the world’s population who don’t use computers. “It will use the Windows system, which is just too complicated. Microsoft simply does not understand the plot. We are not only after simpler computing but cheaper computing.”

Industry insiders predict that the NC will have a tough time in the market next year. Intel has traditionally co-funded the advertising for hardware manufacturers. Its “Intel inside” campaign has generated 30bn worth of advertising worldwide in the past three years. In practical terms it means Intel contributes 50 per cent of TV ads and 66 per cent of print costs to a hardware manufacturer’s campaign.

“This means the manufacturers can spend double on their campaign and, in advertising terms, they can blow the NC out of the water,” says one insider. Ironically, or possibly to benefit from Intel’s benevolence, Oracle has recently encouraged the company to make some of the chips for the NC machines.

Barley refuses to disclose the marketing budget for the NC, although Oracle has just hired Publicis to develop some non-NC “project work” which will run early in the new year. The priority is the business market where the low costs of ownership make the NC more appealing.

A number of Oracle’s corporate clients have been testing the machine for the past eight weeks. By the end of 1997, Barley hopes to have secured 25 per cent of the business market, with about 18 per cent of the domestic market hooked by the year 2002.

Observers don’t see the home market as being so fruitful for the NC. “There are two things against it,” says International Data Corporation computer analyst Simon Pearce. “Computers are seen as a status symbol and people will not want to buy ones that are advertised as cheap and with few functions. The other thing is that you will have to get online to use it. People will see that as an extra cost and they will not like that.

“The vision for the NC is grand – to make computers simple, to get more people to use them. The question is whether there is an infrastructure to deliver this and whether Oracle can deliver the proposition?”

The company is confident that the NC represents the future. “We do not see NCs as solely computers,” says Barley. “An NC chip can be put into a TV, linking it to the Internet. The world is becoming networked: we want it to be like the phone system where you can take a unit and plug it in anywhere. At the moment you can’t do this with computers.”

Oracle sees the NC launch as the opportunity to hit the big time. But if the machine fails, Microsoft will be there to pick up the pieces, and reinforce its position as the biggest kid in the playground.