What can you buy for $399? Half a year of premium cable TV, a Nintendo 64 console with three games, one night in a tacky Las Vegas hotel during the Comdex computer show. Or how about a fully functional personal computer?
A handful of $399 PCs (sans monitor) are on the market today, with many more on the way. In the old days (two years ago, that is), prices were stable. Year after year, you'd have to plunk down $2,000 to $4,000 for a PC. Every year, you'd get a faster, more capacious and feature-rich machine. But the cost was still high.
This was oddly consistent with Moore's law, the industry principle expounded by Gordon Moore, co-founder of microprocessor giant Intel Corp.: Every 18 to 24 months, microprocessor power doubles for about the same price. Because pricing is largely determined by market conditions greatly influenced by Intel, Moore could have proposed a law that had power doubling for half the price. But that would hardly have pleased Intel's shareholders.
Less than two years ago, things changed abruptly. First, Moore's law outdid itself. Processor power had advanced so much that most home and business users no longer needed the fastest, most expensive PCs. Hardware finally began to eclipse the requirements of software. Word processing, spreadsheets, Web surfing and other standard applications did just fine on lower-powered machines.
And Moore's lawbreakers, such as economy-PC maker Packard Bell, seized an opportunity to cash in on the greed of the big boys--"premium" PC makers such as Compaq Computer and IBM--who kept prices artificially high. Price slashing ultimately provoked the top companies to start selling their own economy boxes to staunch the bleeding in their market shares. When Compaq jumped into the sub-$1,000 market about a year ago, it forced almost everyone else to take low-cost PCs seriously.
PC makers also noticed that with prices so low, people can replace older machines more rapidly, and the increased volume justifies a drop in prices. So this year's PCs are both cheaper and better than last.
But what exactly do you get for $399? A pathetic machine, by the standard of current technology. Keep in mind, however, that most people just need something that provides basic functions and saves cash for software. Albeit substandard, these machines boast the performance and features of PCs that would have set you back at least $1,400 only a year ago.
That said, sub-$400 boxes do cut corners. For example, the PowerSpec 2021 from Micro Center (a Cleveland-based retailer with 12 stores nationwide) offers a slow processor and modem, a small hard drive and a paltry 90-day warranty.
The specs on the just-released etower/266 from Fremont, Calif.-based Emachines Inc. (a start-up backed by two South Korean companies) are somewhat better--the machine hasn't been reviewed yet in the trade press but appears to be a strong value. For serious number-crunching, publishing or gaming, pass on these machines. But for e-mail, Web browsing, word-processing and light spreadsheet work, why not consider an etower?
If you're used to a top-flight PC, any $399 box will seem like a dog. But if you've been putting off the move from an old pre-Pentium, these cheapies will seem to pack jaw-dropping power. (Sorry, Mac users. Apple's closest offering is the $1,299 iMac.) Still, most people will prefer to shop up to the next level, partly as a hedge against instant obsolescence.
"Remember that the $399 PC is a fringe system," said Matt Sargent, an industry analyst with ZD Computer Intelligence in La Jolla. "The average selling price for a desktop PC is $1,100. And that has not come down much this year."
The most intriguing question about $399 PCs: How much money can their manufacturers be making? Not much. Emachines has acknowledged that its etower is a loss leader that it hopes to eventually sell in high volume.
Yet Intel--which was dragged kicking and screaming into building chips for sub-$1,000 machines--expects to supply $399 boxes in the near future. That will push edgy start-ups even lower. Santa Clara, Calif.-based National Semiconductor Corp.'s PC-on-a-chip could radically reduce the number of parts in a computer and drive PC prices below $200 a year from now, according to Sargent. (National's less advanced chips already run the rigs from Micro Center and Emachines.)
That leads to the inevitable question: Are we headed into a world where PCs will be given away free?
Yes, but not as party favors. They'll follow the model of cell phones. That is, free with a costly service agreement. The beginnings of such a model are already with us. Compaq, for example, offers a $100 rebate on some Presario models if the buyer agrees to a free trial of Internet access from GTE, which then kicks back to Compaq some of the monthly service fee for buyers who continue to use GTE after the trial period.
Compaq and other PC makers also offer one-touch keyboard access to certain Web sites in return for considerations that Compaq would not specify.
"The box guys become a distribution center for the Internet service providers and portals," said Bruce Stephen, an analyst with International Data Corp. in Framingham, Mass.
Personally, I'm waiting for the day when the PC makers pay me to take their product.
Charles Piller can be reached at firstname.lastname@example.org.