Perspective: Why PCs aren't pricey anymore

perspective It was something to behold while it lasted. But as happens with nearly everything in life, the fad that was PC mail order has just about run its course.

Oh, you can still buy a computer direct--either by making a 1-800 telephone call or by logging onto a corporate Web site. But that's a world away from what I'm talking about.

It wasn't long ago that you could choose among scores of PC mail-order outfits making first-rate machines every bit as good as those offered by the IBMs and Compaqs of the world. And then there was Dell Computer and Gateway, two direct resellers in a class by themselves. Publicly traded companies with billions of dollars in annual sales--and billionaire CEOs to boot--they were lauded in countless business magazine cover pieces extolling the latest turn in old-fashioned American entrepreneurship.

Say goodbye to all that.

After its most recent annus horribilis, Dell increasingly sees its future in retail.

Gateway, which stumbled its way into irrelevance for much of the last decade, now operates as an arm of Acer. As for the rest of that once-plucky cohort of no-name direct sellers, most are insignificant, at best, or fly-by-night operations at worst.

Maybe all of this was foreordained. After all, how many multibillion-dollar industries can you find where mail order trumps retail distribution by a wide margin? But for a brief period, the mail-order crowd was to give the mainstream one helluva run for the money.

These days you have no excuse for getting ripped off. If you pay too much for a computer, it's your own fault.

Like the tech enthusiasts and computer clubs that formed at the dawn of the personal computer era, that first crop of entrepreneurs was a unique bunch. A few accumulated fortunes. Some sold out before the good times ended. Many--maybe most?--ultimately went bust. But before they left the scene, direct-sales specialists like Gateway's Ted Waitt, Art Lazere at Northgate, Greg Herrick at Zeos, and of course Michael Dell, who's still at the helm of his eponymous company, were responsible for forcing computer makers to make machines that regular folks could afford.

If you recall, that wasn't always the case. In the mid-1980s a fully loaded PC XT or PC AT sold by IBM or clone makers like Compaq or AST Research cost several thousand dollars, depending upon the configuration. Those fat profit margins helped pay for a cumbersome distribution system that relied upon computer retailers.

Some computer resellers were very good at their craft. Companies like Businessland, Entre, and Inacomp went public and for a time did quite nicely. For the most part, however, the computer stores were fat and happy order takers. They got away charging big premiums because PCs were still a novelty for most people. If you wanted to buy a computer, what alternative did you have other than to build your own?

The mail-order guys exploited that opening for all it was worth. At first, their rising popularity was mostly related to the lower prices they charged. In time, though, they became masters of improvisation and would learn how to beat the old-line computer companies in the new-features competition. At one point, Big Blue fell so far behind the mail-order makers that it panicked and started a separate direct-sales company based in Raleigh, N.C.

But you can stay dumb for only so long.

In time, the rest of the industry figured out how to squeeze inefficiencies out of their distribution systems and became far more nimble. The emergence of the Internet was the game changer. Big computer companies that previously avoided channel conflict like the plague seized upon the new technology. Relying exclusively on retailers no longer made sense. The new mantra: let the customer decide where to buy the product.

The dominoes fell quickly. Direct vendors lost their advantage as every computer maker worth its salt now also was a direct vendor. The PC was always a commodity--only dressed up as something more than that. Now there is no returning to the days of Fat City. These days you have no excuse for getting ripped off. If you pay too much for a computer, it's your own fault.

Remember that next time you go shopping for a new PC. And while you're at it, how about a holiday note of thanks for the entrepreneurs who helped make it happen.

Biography
Charles Cooper is CNET News.com's executive editor of commentary.

More Perspectives

[jafinlay]

Great!, but give us details

This is a great article about how PCs got cheaper by mail order companies being better than retailers at delivering what customers want. Now that the retailers have taken that over customers benefit. I get the big picture. How to apply it now to get the best deal. Say I want a laptop, do I surf the net, with froogle? Do I go to IBM, Dells and HPs sites and check features and prices? Do I look in the news paper? Do I take my companies special deal with Dell? It still isn't easy. I'll probably do all these, put it into excel and run the final numbers myself but it isn't easy. Thanks for any simplification that you can think of folks!

Sincerely, Judith

[camp88]

How's your Latin?

anno horribilis?

I tink it's "annus," der bub.

anno: "in the year," as in anno domini (in the year of our lord)

And "horribilis" actually means "terrifying" in Latin. The Queen
used it to make a pun, but she's probably taken a few more Latin
lessons than the rest of us.

I think what you actually want is "annus terribilis": dreadful year.
Alternatively, you could simply write in English and we'd
probably understand what you're trying to say.

[GrandpaN1947]

So what's different?

Are you saying we bought computers online because they were too expensive? Excuse me but, computers are still too expensive and cost thousands of dollars. Only now they are all made overseas and we all can't find decent paying jobs to buy them. The big computer thing happened because, for a short period of time, the FED didn't raise interest rates when "wages were too high". This allowed jobs to be created and dollars to be spent on things like computers. Excuse me while I go fill up my car with $3 gas at lower wages than 10 years ago.

[cyberspittle]

Should be title "The death of Computer shopper"

funny how times have changed. I blame it on the speed of the internet. I used to spend hours and hours going through Computer Shopper magazine. It used to be real thick, like a Sears catalog. Sure there there were some articles to read, but mostly it was better to read the ads in it. Funny, I still have my 1st 486 that I put together with the computer shopper. It was a real speed demon on it's day with 16MBs RAM (4 pieces of 4MB SIMMs), 486DX266Mhz processor (replaced with a 133Mhz Powerstacker), a 2MB ATI Mach32 video card, and also a 240MB Western Digital hard drive. Funny how times have changed.

[markforstneger]

Blast from the past

Wow! Zeos! Haven't heard that company's name in years. I remember back in 1994 when I got my first PC in college and they were one of the big players. Gateway "2000" always had the cutesie insert ads in PC Magazine. I ended up going with a Micron, which served me well. Later I bought a Gateway from a Gateway store, which closed several months later. About a year ago, my father bought a Dell from a Dell kiosk in a mall. How times change. How old I'm getting!

[jscott418]

PC are cheap because of competition

The simple supply and demand 101 has brought the cost of PC's
down. Just like laptops are now doing. Used to be a few thousands
would by you a laptop. Now you can get one for under $500.
Truth is parts from China have brought prices down for he stuff
computers are made of. Bear in mind too how much America has
lost in US owned computer companies. With IBM out of it and Acer
buying Gateway, this leaves HP and Dell with ties to US.Of course
Apple too.

[jacquesmueller]

But at what cost?

Ah, yes, those days of just holding out your hand to accept a credit card to ring up a $6,000 system consisting of an IBM XT, Monochrome screen, AST 6-Pak Plus (with I/O and clock, please), and an Epson LQ-1500 printer! Thank you, indeed, to the entrepreneurs that forced the hardware price down. But at what cost?

Yes, the margins had to be there for the retail channel to actual support both introducing this new world to the public AND to actually support it! Again, yes, their were support groups, bulletin boards, etc., but the main avenue for the non-computer enthusiast that was trying to delve into this new world was the retailer. These retailers had a local presence with more locally tuned knowledge for both marketing and support which is devoid from the larger chains of today. Heck, most of the folks in the "computer departments" today shouldn't be selling water! Someone has to pay for this, but who opens their wallet for support once it is removed from being "built-in" to the sauce? And I'm referring to INTEGRATED support when an issue arises with your setup. Some try and do a commendable job with the components that they manufacture, but attempts usually devolve into finger-pointing and general disgust on the part of the home user. This, in fact, is arguably the largest contributor to the downslide of Dell over the past 2 years.

Corporate America has done a fairly good job of understanding the concept of Total Cost of Ownership (TCO), but it seems the Consumer PC market deems itself immune from the "softer" components of true support cost, brand damage, etc. Unfortunately, many of those entrepreneurs were ready to "split the margin" with the consumer without really properly taking on the rest of the equation. There are exceptions.

Apple, with its higher than normal ratings on support, benefits from both its directly controlled retail presence (ever really watch how busy those Genius Bars are?) and their more closed ecosystem. How do they pay for this? Both through better margins and ADDED price; such as Applecare. They execute well and they have the products that people want accessible in locations with capable (and in person) sales and support. As for the Windows space with HP, Dell, Acer, Lenovo, it's not as pretty.

Buy, hey, things are so cheap today you can just yank the device that's not behaving and get a new one! Besides the growing mountain range of dumped plastic, I'm just not sure that the full experience that PC visionaries had in mind can be realized without addressing this cost as well.

[komindo]

PC is made from components

The PC price drop because the PC component price drops. HP and Dell still keep some kind of profit (HP and Dell keep margin by downsizing as well.) while manufacturers is suffering the price drop and increasing labor cost in China. Remember PC is made from RAM, Hard Drive, Power Supply, LCD, Keyboard, CPU, CD-ROM with all the price drop by manufacturer. The efficiency effort is pushed by HP/Dell and executed very hard by supplier.

[bbbl67]

Mail-order had little to do with it

The prices came down as a result of the acceptance of lesser brands, and even no brands. Local white box makers had at least as much to do with price reductions as the mail-order places. Contrary to popular myth, Dell's tremendous success up until a couple of years ago, was not as a result of any cost efficiencies inherent in the mail-order model, it was mainly due to Intel subsidies and some small amount of accounting fraud.

[charlie cooper]

It wasn't Dell

Dell had little to do with it. We did several market price comparisons in the early & mid-1990s and Dell often was at the higher end of the price spectrum.

[ggrs34]

Always Cheap in Australia

Australian PC's are about 30% the price of an equivilant Mac, they haven't been 'expensive' for a decade or more. WHY? because we get all components direct from China/Korea etc and assemble them to order in Australia, without paying all your USA taxes, tarrifs, corporate profits, bonuses etc.

Even though Mac's are made in the same countries as the PC's, we can only get Mac's direct from the USA and pay all 70% of the mark-up extra's to put a smile on Steve Jobs face - while adding nothing of value to the product. So like 90% of the world, we don't buy Macs.

You American's, I'm sad to say, have been screwed for far too long. Cry Freedom !!

[blangton]

Ah...the good ol' days...

Yes - your article and especially, the comments brought back some good memories. Computer Shopper - had forgot all about it. Yes - great memories thumbing through and looking for the best deals on components. I built my own PC's back in those days and had a great, local supplier who could get me the parts cheap. I had some screaming home-brew machines along the way - NEC 8088, 286, 386, 486, AMD, my first 3 digit HD - 100mb - WOW!

Now to think that I have a 4GB thumb drive in one pocket and a WiFi iPod with a touch screen in the other for about the same money as a couple of tanks of gas in the SUV...my how times change!

Keep up the good work...

Bill

[Maclover1]

Way off base

Online only...gone forever. Online sales will grow more each year.

Honstly I would not shop at a store for much if I could get A. What I want online and B. At the lowest price.

I used to read lots of computer mags to include Compter shopper. Now I get one or two through work and none of them are for reviews of PC hardware. I get all of that information online now. I spec out online and if I can get the best price online (my macbook is from Mac Mall) then I buy online.

Only would I buy a "cheap" notebook at BB or CC during August (back to school) or during Christmas seasons where you will see some pretty good deals on low end stuff. That said most of those deals are online as well and you dont have to fight the crowds.

While you see article after article each year about how more people are turning to the internet you see this one??? Sure Dell has moved into stores..but the vast majority of sales will still be online.

[Fake Donald Trump]

Microsoft helped lower the price of the PC

by making the cost of developing an operating system lower for OEMs.

First it was MS-DOS and then later Windows. Microsoft set the standards for operating systems on PCs, and it cut the costs of PC Makers so they didn't have to pay the high R&D costs of developing a new operating system.

Before Microsoft set the standard with MS-DOS, PC Makers had to make their own operating system. Tandy had TRS-DOS, Commodore had Commodore BASIC, Atari had Atari BASIC, Osborne had Osborne DOS, Apple had AppleDOS, etc. Each different operating system could not run programs from other operating systems until MS-DOS and Windows became the standard.

Microsoft set the operating system standards that we use today, as well as application standards and most file formats.

Also most web pages are designed for Internet Explorer 6.0 or above, and most media formats are designed for Microsoft Media Player as well.

All of this cuts down the R&D costs of developing your own operating system and application software, which leads to lower prices for PCs that have it bundled on them.

The more software that gets sold, the lower the price of that software. Sell in bulk and it lowers the price. The more PCs that get sold the lower the price as well, sell them in bulk and it lowers the price.

The same is true of Wal-Mart they sell more items in bulk, at lower prices than anyone else. They have a good inventory system software database that helps them keep costs low, they use Windows as a standard for that database.