$200 Linux PCs

Gekko and Webslacker were the first of many to tell us about the stir over at ZDNet, which is reporting on the arrival of sub $200 PCs due Q1 2000. These new desktops from Taiwan's Tatung come in eye-catching candy colors a la Apple's iMac. Tatung has opted for Rise and Cyrix K6 chips instead of Intel Pentiums, and a CD-ROM drive is an option. One wonders with the increase in the cost of DRAM how this will impact the price?

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The Mystery of the Missing Killer App

[Clairvaux]

About two years ago, when PC prices began their long, unrelieved slide to levels today which would have amazed the PC buyers of the early 90s, I did some hard thinking about whether this was a whole new ballgame and what factors were at work here which I later turned into an unpublished article. Let me restate a few of the relevant points here.

NOTE: this turned into a GIGANTIC post, but I strike a blow for Penguin at the end, so hang in there! ^_^

* * *

First, pricing is a result of supply and demand forces. This is axiomatic. Thus when I observe some kind of systematic trend in prices, I infer that there are systematic changes taking place in demand, supply, or both.

On the supply side, we have Moore's law and it's cousins perpetually at work bringing down the cost-per-unit of processing power, storage, bandwidth, and every other dimension of computing. There are some irregularities to this which I'll address later but fundamentally, the past 20 years have been characterized by remarkably steady progress on the supply side.

If you accept this, then the relative stability of the average selling price of a PC between its advent in the early 80s up until roughly 1995 meant that there must have been concurrent, offsetting changes on the demand side stimulating demand for the constantly increasing supply of computing-units.

We even have a name for these demand-side stimulants. We call them Killer Apps. I my opinion, these Killer Apps are so significant to the history of the PC that one can even slice that history into phases characterized by the Killer App of the day.

I. Early DOS Era (1981 - 1984)

Spreadsheets and word processors! The first Killer Apps that drove initial sales of the PC, pushing it into the corporate mainstream. Spreadsheets, running in text mode under MS-DOS, supported several generations of hardware upgrades, because the performance improvement from each upgrade was visible and appreciable -- and contributed to productivity.

Typical CPUs: 6502, 8086, 8088 Typical RAM and storage: 256K RAM, 180K floppies, 10MB hard disks

II. Late DOS, early GUI and Graphics Era (1984 - 1989)

With growing sales of PCs came the development of lots of other uses for them, and the advent of rapidly improving graphics. The Mac GUI and page layout software like Aldus Pagemaker were acknowledged Killer Apps. And GAMES baby!

CPUs of this Era: 80286, 80386, 68000
Typical RAM and storage: 640K RAM, 100MB hard disks

III. Late GUI and LAN Era (1990 - 1993)

As the set of tasks for which one could employ a PC grew, users began needing to easily switch between applications. Several methods were developed that allowed the PC to run concurrent programs.

The GUI imposed a significant system overhead, once again supporting demand for several generations of CPU progress. Furthermore, all the software for PCs was eventually rewritten as graphical Windows applications to facilitate multitasking and incorporate new features that the GUI environment made possible. The new code was fatter, driving demand for more/faster RAM and disk space.

This era also saw the emergence of widespread local area networks (LAN) allowing shared storage resources and launching the client-server paradigm. This segmented the PC market into client desktops and network file servers. The PC-based server was a Killer App that definitely pushed demand for computing power and divided the market into today's enterprise/desktop segments.

CPUs of this Era: 80486, 80486DX2
Typical RAM and storage: 2MB - 8MB RAM, 400MB hard disks

IV. The 32-bit Era (1994 - Present)

The next Killer App that continued this saga of seemingly perpetual demand for more hardware performance was the advent of 32-bit GUIs in the form of Windows NT and Windows 95. Applications ONCE AGAIN being rewritten for the new OS consumed even more system overhead and incorporated yet more functionality, creating another cycle of appetite for better hardware.

CPUs of this Era: Pentium, Pentium Pro, AMD K5, K6
Typical RAM and storage: 16MB - 32MB RAM, 1GB hard disks

V. Today: The Internet Era (1996 - Present)

Today's Killer App which drives sales of PCs is the Internet.

Unfortunately for the companies that had planned on continued geometric demand growth for CPU speed, RAM, and drive space, this latest Killer App doesn't require those things. Applications for browsing the web, chatting, and communicating with e-mail, in their existing form are very "light" applications which don't require supercomputing horsepower.

Meanwhile, nothing new has emerged in other areas that offers appreciable functionality for mainstream users to carry the upgrade cycle further. Spreadsheets, word processors, presentation builders, and so on have apparently attained a "functionality saturation point." I'm sure we've all heard the comment, "What MORE can a word processor do?"

Clearly, the situation bodes ill for companies such as Intel, Micron Tech, and Western Digital, who have benefited from past generations of killer apps, but look to be out in the cold this time around. In the past, killer apps doubly pumped companies like these: by (a) shifting demand curves outward, and (b) simultaneously reducing price elasticity of demand, tilting the demand curve toward the vertical. A more detailed discussion of this effect is in a separate article; here, suffice it to say that these effects combined to heavily reward vendors of these products with each advent of a new killer app.

CPUs of this Era: Pentium MMX, Pentium II, AMD K6
Typical RAM and drive space: 32MB - 64MB RAM, 2GB - 4GB hard disks

So -- are you still with me? Amazing! ^_^

The way I concluded this article two years ago was to predict a recession in the PC industry unless a new Killer App emerged. Well, I was WRONG. No new killer app surfaced, but the PC industry has been booming.

Why is this? I believe it's because although the demand level for stuffing a ton of power and storage into a single box has plateaued, the demand for the number of boxes has continued to climb, as legions of new, first-time buyers, attracted by the "network effect" enter the market. Geoffrey Moore would describe them as "Late Majority."

Supposing that this continues for a while, and average unit selling prices of PCs continue to decline, I see a couple of interesting consequences of this. The first has to do with Milton Friedman's theory of component elasticity. This theory is very simple so don't worry if you didn't make it through Econ 180. The relevant part of it states that those parts of the whole product which are a big chunk of the cost of that product will be most sensitive to changes in the market for that product. Here's how it's relevant to the PC situation. Back when the average PC cost $2000, a $100 license for the OS was only 5% of the total. So nobody worried too much about the price of the OS.

HOWEVER -- for a PC that costs $400, the OS is now the BIGGEST COMPONENT COST. Vendors have a tremendous incentive to try and reduce that cost ... and guess what they're all thinking about right now?

LINUX.

Re:The Mystery of the Missing Killer App

[bmetzler]

Here's how it's relevant to the PC situation. Back when the average PC cost $2000, a $100 license for the OS was only 5% of the total. So nobody worried too much about the price of the OS.

It's amazing that in Microsoft's Anti-trust trial they *still* tried to argue that the cost of a typcial PC was $2000.

HOWEVER -- for a PC that costs $400, the OS is now the BIGGEST COMPONENT COST. Vendors have a tremendous incentive to try and reduce that cost ... and guess what they're all thinking about right now?

The concept of the black box. People buying a "computer" to do a few limited tasks. They don't care one bit what OS it runs as long as the web browser lets them use eBay.

How can Microsoft compete when the OS is no longer important? They can't. I predict that we'll see a lot of marketing by Microsoft saying that the sub-$200's PC's are a "bad thing". (IE, Microsoft will keep computer out of reach of the consumer). Then when they realize they can't stop it they will subsidize the licensing of Windows to "Black Box" OEM's. But hopefully by that time it will be too late. OEM's won't want to give up their freedom to have their product dictated by Microsoft just to accept money from Microsoft.

-Brent
--

Re:The Killer App is dormant, not gone...

[_Sprocket_]

A very salient observation you've made there; except that the Killer Apps are still around, but instead of hitting a PC bottleneck, they are restricted by network bandwidth.

Just think of video conferencing, VR environments and other such bandwidth-sucking beasties...

Indeed. The Industry Bigwigs know that killer app is just sitting there. Waiting. Just out of reach.

Sure... Intel tries to dance funky animations in front of us, wave a "door" around on the screen, and claim that CPU horsepower (specifically, THEIR brand of horsepower) will make your Internet experience better. We all know that's hooey. What we need is bandwidth. Intel knows that too.

Witness the investments in both cable and ADSL that Bigwigs like Intel and Microsoft have made. They really don't care what high bandwidth hardware religion comes out on top. What they DO know is that once the bandwidth is there, the next wave of resource intensive apps will become commonplace. They need those apps to sell product.

I agree. The next Killer App is dormant. Its only waiting for the telecommunications infrastructure to get around to laying a path to your home. Its a slow process.... but its just a matter of time.

These are *made* for kiosks

[pwhysall]

You know, those annoying booths they have in public libraries, connected to the council Web site or whatever, or that provide employment advice.

Why bother with a regular PC when one of these will do just as well?

The colours are groovy, too.
--

$300 Windows Tax?

[Myopic]

"I wonder how (a PC vendor) can get to $200 with Windows 98. But if they can do it, that's a real PC -- that's a breakthrough," he said.

What the hell was this guy thinking when he said this? I thought it was the greatest thing in the world when the article said they were going to charge $500 for a Windows box and only $200 for a Linux box, then this idiot has to imply that a Linux box "doesn't count as a REAL PC". Arg.


Myopic

Re:E-Machines

[SEE]

You want a games machine for under $1000? They're called "consoles". Sony, Nintendo, and Sega make 'em.

My eMachines has a multi-read CD-ROM. The included modem doesn't matter since I have an @Home cable connection[1]. And while it may not have a separate 3D accelerator card, it's got on-board ATI 3D Rage Pro Turbo 2x AGP graphics with 4 MB of SGRAM.

Damned good deal for $520, including tax, printer, and monitor, after mail-in rebates (not the "internet" rebates, the real ones). I can spend $300 on upgrades and still come out ahead of a new Gateway or Dell machine.

[1]The 56K external modem I mentioned in a previous post on this subject is now on another machine. I still prefer externals to internals anyway.

Excellent...

[Xuff]

Ahh, finally, the bathroom computer comes home. No more printing /. to keep me entertained during #2, now it's all gonna be live!

Cheaper by the sixpack?

[A nonymous Coward]

Now that would be something. Maybe a hacker's dozen? Buy 16, get the 17th for free.

O rbuy as many as you need, and another for a spare, so when one of them dies, you just quickly configure its net address (or use DHCP in the first place) and you're back on line.

Heck, get two for each room, that way you have some hot standbys!

Yeh, I see some potential here.

--

Re:What about BLACK?

[Kintanon]

My question is simple: why not allow the customer to choose from a list of colors.. a LONG list. Not everybody that doesn't want beige wants some prissy pastel color.

I want BLACK. Charcoal gray. Matte finish dark blue. What about my needs?



Beige is easy to paint over, I go for beige + spray paint/model paint. I just wish the cases were cooler looking, I'm getting tired of just Square. Someone throw in some nice curves or something.

Kintanon

Re:Performance grading $200 PC for software select

[bmetzler]

Although really cheap PCs are viable, there is one problem: What kind of software will run well on it? It is pretty obvious that bloated software like Win 2000 + Office 2000 + IE 5.0 won't run very well on these systems ... but a lot of excellent software will!

It says right in the article. These "PC's" will be running Linux.

It is a misnomer to consider these as "PC's". Because they are not. They will never replace the PC's that are typically imagined when a PC is mentioned. They aren't intended too. They are market to consumers who just want to surf the internet, get e-mail and do word processing.

Maybe there should be a cheap PC labeling system to help people decide what software to get for their new $200 PC.

These devices have no CD-rom. You won't "get" software for them. You'll get them to use the software that comes setup and ready to run.

The people who these devices are marketed to are people who heard they could shop online, or do email, or perhaps some word processing, or typical use like that. Instead of spending $600 on a PC just to get e-mail and surf the internet, they go to Best Buy and buy one of these $200 devices. The salesperson sets them up with an internet account, not unlike is done now, and they go home.

Once they are home they open the box, take out the device. Plug in the power cord, monitor, and telephone cord. Turn it on. When the Wizard comes up type in your name, account name, ISP number and GO!. All the important information which the user wouldn't understand was, of course, filled out on the quick-start card at the retail store. Once they've done that they get the "desktop" with the icon for email, web and word processing, and perhaps a few other standards apps. Turn it off from the menu. Turn it on, it boots right up to the "desktop" and there are their icons again.

And this is the killer app on the desktop for Linux. Linux is extremely user-friendly in this use, much more so then Windows. It has all the apps that the user needs. WordPerfect and Mozilla. And there's no need to worry about running 3rd Party software. OEM's are free to customise however they want, something that Microsoft won't allow with Windows. And it is "their" package. Not Microsoft's.

Ah, yes, the future is bright for Linux in low-cost computing devices.

-Brent
--

Damn...

[Graymalkin]

this kind of news is depressing for someone who might some day like to get into the business. The competition is already daunting but this borders on assanine. There's no real point in trying to work for yourself anymore, everything's already been done and done cheaper.

Re:Damn...

[GC]

fear not. Not all users are looking for the cheapest PC they can find. Look at the specifications of these machines closely and you will say to yourself well, I need a monitor - and a good one will double the price of the PC! If you do get a good one then perhaps you might want a better graphics card. You want graphics? perhaps you should get a beeter CPU and more system memory. Well, there's no point having a PC if you can't load software onto it so you should also add a CD-ROM, if you're going to get CD-ROM you may as well take advantage and get DVD. Want to ensure your data is safe? then perhaps you should look at SCSI and RAID 5 arrays or perhaps a backup drive will suit you.

These $200 PCs are so stripped down that it's not really worth buying if you're seriously looking at running Linux. I used to work for a Taiwanese manufacturer: they once decided to remove a 25Mhz clock from one of their sound board and wire the circuit to a 33Mhz clock, small problem however, when you sampled sound at 11Khz, you would have to play it back at 8khz on other sound cards to get the sample to sound right!

Sometimes it's always better to pay a little premium, just to ensure good workmanship and guarantee.

If you're looking to get into the system integrator business then I would recommend that you concentrate your marketing and production on quality, leave these tacky PC makers to waddle in their own £$%*.

a few flaws, but it's a start

[Ater]

As of now it still looks too good to be true. After all, still no monitor, some highly outdated components, and no mention of a warranty. Not to mention the eerie IMac-esque focus on color and looks (now in 6 delicious fruit flavors). Might make a nice gift for granny or the kids or a halfassed web machine (ew), but i dont expect too much use from it yet.

However, the option to have Linux preinstalled on the box is a great idea that is finally coming around. Yes, self installation does teach a user a large amount of necessary information and skills, but then again, how many mainstream pc users could deal with installing windows by themselves from scratch? It's great that buyers are finally getting some choice on what OS they can run on their box instead of having windows foisted upon them. Of course this may result in some clueless newbies inadvertently screwing up their new boxes, but it's definitly worth it to establish Linux as a true mainstream force. The trend, if sucessful could convince software companies to port all their products to Linux and provide more tech support for Linux users. Plus, if Linux hits the mainstream, MS might actually have to start working on fixing Windows instead of relying on their market monopoly. I hope this trend continues in full force.

Performance grading $200 PC for software selection

[dmacon]

Although really cheap PCs are viable, there is
one problem: What kind of software will run well
on it? It is pretty obvious that
bloated software like Win 2000 + Office 2000 + IE
5.0 won't run very well on these systems ... but
a lot of excellent software will!

Maybe there should be a cheap PC labeling system
to help people decide what software to get for
their new $200 PC.

There has been some initiatives for defining
performance requirements like MPC2 and MPC3, but
both of these labels required a CD-ROM to be in
place.


BTW:
The iMac is ugly, these PC's are even uglier.
How about something which looks more boring.
Technology shouldn't bee seen, it should just
work for you.

The Killer App is dormant, not gone...

[Peter Eckersley]

A very salient observation you've made there; except that the Killer Apps are still around, but instead of hitting a PC bottleneck, they are restricted by network bandwidth.

Just think of video conferencing, VR environments and other such bandwidth-sucking beasties...

If there was fibre layed to every door, the prices people would be willing to pay for computers would go back up.