PC Vendors Must Adapt Or Die

(MoneyWatch)  Dell, HP, Lenovo and other hardware vendors could be looking at the end of their PC businesses within four years, as enterprises start implementing a more network-based approach to delivering computing power and applications.

The threat comes from a technology known as hosted virtual desktops, based on software and networking tools that allow all the data that currently resides within a PC to be served up from the data center. If this all sounds vaguely familiar, that's because it's an updated version of the thin-client revolution that failed to deliver on the same promise over a decade ago because end users found it took too long for data and applications to make the round trip from servers to their desktops, assuming the network hadn't crashed. This time around, the argument goes, the technology features more advanced software and networking capabilities that should overcome the slow reaction times and network outages that plagued the earlier generation.

The appeal to customers is the same as ever, which is the promise of less expensive desktops along with lower ancillary costs associated with fitting out PCs with software and then maintaining them in working order. So appealing are these cost savings that the Gartner consulting firm believes hosted virtual desktops, currently less than one percent of all professional desktops deployed, will represent a whopping 40% of the market by 2013, representing more than $65 billion in revenues.

The hardware vendors will still have a market for a greatly scaled-down version of the PC, but the hardware will be more commoditized than ever, and generate negligible margins. The only thing vendors can hang hat their hats on will be selling more servers. But to do that, they will have to sell servers that are fully equipped with software and networking tools supporting the ability to host virtual desktops, and manage network sessions and the provisioning of virtual desktops.

Gartner analyst Annette Jump told me that as the hardware and software has to work together more intimately than ever, the hardware vendors will have to provide a complete offering, rather than just bits and pieces. Otherwise, they'll find themselves relegated to selling empty shells to the likes of VMware, the current market leader for desktop virtualization, Citrix, Microsoft, Parallels, and Red Hat, for very meager earnings indeed.