What’s going on with the inhouse thin-client computing industry—and why should we care? The answer might be related to a second question: Can thin-client vendors stay afloat?

If you think I’m being alarmist, consider recent industry signs. Citrix’s share price has been hammered since the company announced that its second quarter wasn’t as profitable as analysts expected. Anticipated growth in the application service provider (ASP) industry didn't pay off as Citrix had hoped. After the June announcement, the stock price dropped (it had already fallen with the first quarter's broad technology slide), and more than a dozen law firms filed class-action suits alleging that Citrix had misled investors about its prospects. Ed Iacobucci, a Citrix cofounder and one of the company officers named in the class-action suits, resigned. When Citrix announced final second-quarter results in July, the share price dropped again. At 15 1/16, it’s now barely above its 52-week low of 14 3/4. (Although a plummeting share price doesn't affect an existing product's usefulness, it does mean less money for research and development and other investment.) Recently, a financial analyst called a thin-client industry media contact I know to ask whether Citrix might put itself up for sale and who potential buyers might be. I don’t expect Citrix to sell out, but who would've asked the question just 6 months ago?

And Citrix isn’t the only company having a hard time this year. Indications are not positive for NCD, maker of the ThinStar Windows terminals and the ThinPath suite of helper software for Windows terminal services. In April, NCD posted greater-than-expected losses for the first quarter, citing a sharp decline in sales compared with the previous quarter, and laid off about 20 percent of its 330-person workforce. The company hasn’t yet posted financial results for the second quarter (the CFO’s office says that it plans to publish the earnings statements in August)— this just doesn’t look good.

Perhaps the problem in the thin-client industry is lack of focus—or a focus that's looking too far ahead. Companies selling thin-client solutions are exploring the ASP model, which has received a lot of press lately (as editor of Application Service Provider UPDATE, I’m providing some of that coverage). But while the technology has potential (enough potential that Microsoft, the company that practically defines client-based computing, is looking to serve applications through its Microsoft. NET and its Office Online initiatives) and working ASPs exist, it's still a niche market. Right now, the best use of ASP technology is to give small companies access to applications that they couldn't otherwise afford. Large companies—the Holy Grail of the ASP market—already have backup systems, data protection, and the money to support the applications they need. It’s good that thin-client vendors are looking ahead to ASP opportunities, but if I were trying to sell server-based computing to Fortune 500 companies, I’d first try to sell the idea of using terminal services internally. That way, the companies could use existing structures while experiencing the benefits of the network-centric model: centralized administration, support for new applications on older computers, and support for non-PC clients for PC-dependent applications. Companies that have complete IT departments have little reason to outsource IT to third parties. The ASP idea is a neat one, but I don’t expect it to replace the inhouse computing model. At best, it'll play a supporting role.

Server-based computing is a good idea. Let’s just hope that the industry's vendors can keep their eyes on present as well as future opportunities. It’d be a shame to see our vendors spend all their energy chasing the ASP market when they have yet to tap the inhouse market.