How Much Should a Computer Cost?

Ever since small computer systems (at that time known as "microcomputers") became readily available to consumers back in the 1980s, prices have steadily fallen. The original IBM Personal Computer (PC), the 5100 model, was introduced in 1975 but it was very expensive, costing around $20,000. It boasted up to 64K of memory and a 204K capacity tape drive, with a built-in 5 inch monitor:
IBM 5100

According to the Inflation Calculator, the value of $20,000 in 1975 translates to over $76,000 in today's money. Wow. Yet today you can buy a computer that is orders of magnitude more powerful. Dell's web site advertises an Inspiron with dual core 2.5 GHz processor, 3 GB of memory and a 320 GB hard drive, not to mention a 16X DVD player/writer, and a 17 inch flat panel widescreen monitor, for $499. That's by no means the best deal out there, just a typical one from a brand name vendor.

Even as the prices of the "entry level" systems continue to go down, though, I find it interesting that a "top of the line" system today still costs about what one did in the mid-1990s: around $3000-3500. When I configured my "dream" Dell desktop last night, an XPS with an i7-965 3.2 GHz processor, 12 GB of RAM and a 1.5 TB SATA hard drive, along with a 1 GB Radeon video card, it came in at $3469. That's pretty similar to the price of the highest end Acer with all the bells and whistles a little over ten years ago. Of course, with inflation today's Dell actually costs more in equivalent dollars (about $1000 more) than that Acer did.

So how much should a computer cost, anyway? Can we expect the costs for basic systems to keep going down as they have for the past decade? If it continues for much longer, it seems that soon the hardware vendors will be paying us to take their products. And although that might sound good, it doesn't seem very realistic.

Profit margins on those low cost systems are already pretty slim. We've all heard the joke about the company that loses money on every sale but hopes to make up for it in volume - but that doesn't work so well in the real world. Computer vendors are facing declining revenues; Dell reported profits down 5% compared to last year, and HP (which last year took over Dell's position as number one in the industry) saw profits drop 13% in the first quarter compared to last year.
DELL,HPQ Dell Q4: Earnings Preview

How do the vendors make money selling computers at such low prices? Both HP's and Dell's web sites advertise desktops as low as $279. Sure, that includes a Celeron processor and only 2 GB of memory - but the specs are close to those of a top-of-the-line machine only a few years ago and are good enough to run even resource-intensive Vista. If you start ordering one of those low-cost computers, though, you'll begin to see the vendors' strategies. Clicking through the pages to "customize" your system, you'll be given the opportunity to every turn to "upgrade" each component to something better and to add peripherals, software and services. These choices are presented one at a time, and the cost of each one, by itself, looks pretty low. You need only spend an extra $30 or $50 or $100 to go from the low-end component to one that's much more powerful, better or bigger. In fact, just for fun, I started out with Dell's $279 system and selected the highest end upgrade offered on each page. By the time I finished "customizing," even without adding a printer or any software, the price of my $279 system was up to almost $2000.

One way vendors and retailers make money on low-margin items is with those extended warranties that they try so hard to sell you. Has anyone here actually used one of those warranties? I'm sure some folks do, but I'd guess it's more likely that most people who buy them never get any benefit out of them. I've found that if a piece of electronics equipment is going to die, it usually happens early (during the standard warranty period) or it lasts beyond the extended warranty period. With computers, what's the point of a four year warranty when it will probably be outdated and you'll want to replace it two years from now? And if it does fail three years down the road, will you even remember where that warranty paperwork is?

The low upfront cost of today's computers is great, but when we talk about cost, we really ought to be talking about the total cost of ownership (TCO). That's a concept that is big in the business world, and for good reason. One place you really see it is when you buy a printer. Inkjets have gotten so cheap almost anyone can afford one - but can you afford to keep it "fed?" With some of them, it's sort of like having someone give you a gigantic dog; you might not have to pay for it, but you'll go broke buying dog food. If a printer costs $100 but you have to spend $50 for ink cartridges every few weeks, it might not be such a great deal after all. Remember: TANSTAAFR (There Ain't No Such Thing As A Free Rottweiler).

There are other costs that are even more hidden. For instance, what about the cost of "free" software? Have you ever spent hours or days trying to get your system working right again after installing a free program that seemed cool? If you lose important data because that free program messed up your file system, what was the real cost? If you rely on "free" security software to save money, is it really worth the risk that you may be more vulnerable to attack? Some free programs work fine, but there's something to that old adage that "you get what you pay for."

Or how about the free software that comes with your computer? The vendor may tell you that you're getting wonderful extras, but that free stuff often consumes up to 20% of your hard disk and slows down your system. Again, you pay the hidden cost.

Tell us what you think about the cost of computing. Has it really gone down, or are you paying as much for your new computer as you did for your old one once you figure in the hidden costs and allow for all those upgrades that you just have to have? Do you think computer prices have hit bottom yet, or will the cost for a basic system continue to plummet? Is the day of the $100 PC in sight? When you buy a computer, do you find yourself starting out to buy the low cost version and ending up with a much higher priced one? Have you ever been shocked to learn that a couple of ink cartridges for your printer were going to cost more than you paid for the printer itself? How do you cut costs when you buy a new system - or do you spend more to get what you want and what will last longer? Will you wait longer to upgrade your hardware because of the current economy? Do you think one of the major hardware vendors will fail? Tell us your thoughts and opinions.
And please head over to the Sunbelt page and take the SunPoll in the right column to let us know how much you spent for your main home computer and peripherals.
Antispyware Software, Antivirus, Malware & Email Protection - Sunbelt Software