December 8th, 2004
Forget Ballmer's $100 PC. Introducing Schwartz's free PC
In a blog entry whose date suggests that he finished it well before the IBM/Lenovo concluded (and was just waiting for it to be official before pressing the publish button), Sun COO Jonathan Schwartz talks about how PCs will follow devices like cell phones and cable boxes into the world of ARPU (pronounced "r-poo") ecomonics. Depending on whose financials you read, ARPU can stand for Average Revenue Per Unit, Per User, or Per Subscriber. Yes, I know that subscriber doesn’t start with a "u", but I don’t make these things up.
But in this context, the relevance of subscriber is important because, as Schwartz articulates it, just as with cell phones, cable boxes, and the like (terminal equipment), PCs will eventually be free and we’ll be subscribing to the services that come through them. The service providers, banking on a lot of ARPU upside based on what they’ll be charging for those services, will be happy to provide those systems for free (but probably more like my cable box where I think I pay $1.50 per month). Schwartz gives an example of how some wireless carriers are inclined to give away phones for which others charge $799. PCs already cost less than that, so the idea that we might be getting free computers from our broadband ISPs isn’t completely unprecedented.
What worries me about this model is how other less desirable characteristics of ARPU economics could affect our PC experience. If you’ve spent any time investigating a cell phone purchase, you should know by now that the worst documents to rely on when comparing alternatives are the ones that provide an exhaustive list of features without discussing which of those features have been activated by the various wireless carriers. A lot of phones, as it turns out, have had some of their most compelling features turned off by the wireless service provider.
For example, in evaluating the newest Bluetooth-enabled BlackBerry phone from T-Mobile, I asked RIM co-CEO Mike Lazaridis if I could connect my PC to T-Mobile’s 2.5G GPRS (General Packet Radio Service) service via the Bluetooth capability. (You connect the PC to the phone via Bluetooth and then the phone acts as a GPRS modem.) Lazaridis answered that RIM included the functionality in the device, but that it’s up to the wireless carrier to enable it, which T-Mobile hasn’t. Likewise, many phones are capable of being configured in such a way that the end user can manually roam onto a stronger signal if the native network isn’t strong enough to sustain a voice or data connection. But that feature is almost always turned off by the wireless carriers because they don’t want you roaming onto competing networks. Now carry this very undesirable trait of ARPU economics forward to the age of free PCs and, well, you get the picture.
Given the traditionally high cost of supporting PCs (which probably exceeds the acquisition cost), I can’t imagine any of my service providers dropping a full-blown PC into my lap. Because cell phones require less support than PCs, cell phone support costs can’t eat into ARPU the way PC support costs can. So, what can we make of Schwartz’s comments? His blog has, on several occasions, foreshadowed a Sun announcement or two (on others, it has outright pre-announced them).
Overall, technology users have been trending towards diverged, specialized devices for specific applications — for example, gaming appliances and iPods. In that context, maybe what Schwartz is really talking about is a less capable desktop, something more like a Web appliance that the telcos (with whom Sun is very tight) can easily support and therefore create additional lucrative ARPU channels. Today, in terms of what Sun has to offer, the company’s Sun Ray Thin clients come closest to fitting this description. With its smart card capabilities, a Sun Ray thin client has a lot to offer to a service provider that wants to give its customers a simple, safe, reliable way to browse and transact over the Internet. (Such a specialized appliance would satisfy the needs of the many users who don’t need a full-blown PC.) Today, starting at $359 (without monitor), the Sun Ray Thin Clients are not exactly cheap. But to the extent that service providers would probably be powering those thin clients with Sun’s servers, Sun has some incentive to give those providers a break on the equipment. That’s because what goes around comes around — there’s an ARPU for Sun that goes with Sun’s servers, too.
