The myth of the $500 computer

This post started life as an email reply to my bother-in-law. The text of his original email.

A few thouths on what you sent out earlier about AAPL and how is makes money.

Even at the 120 price the PE ration for Apple is double the others in the market space, so people have high hopes at this price.

the money is still in the software market, you just have to get enought people to buy it. The margins are amazing. hardware unless you can get people to buy itesm more often you will not make the money at high % over a long term period.

Apple has already shown signs of this. by having to lower its prices to compete withe other companys offering product in the same market space. Apple is still a good but at the 120 mark but will have to bit the bullet as being a special persons things, ie if they want to be a money making machine that lasts, it will have to sell to the general public (500/pcs not 1000-2000/pc)

In my opinion the $500 PC is a myth. That $500 PC or laptop becomes a $1000 computer after 6 to 12 months. You buy something at Dell or Best Buy. A few months later you start complaining that editing your pictures or that video of your vacation takes a long time. You buy more RAM and a larger hard drive and a few more applications (photo editing, video editing etc) after the trial versions expire. Add a webcam to use that cool video chat feature the salesman showed you. And then you need software (subscription) to remove all the spyware and viruses on the machine.

The myth of the $500 computer dell xps laptop prices
The myth of the $500 computer apple store macbook prices

Dell is a lot better at marketing themselves as cheap and affordable. The reality is, however, far from it. Sure, they offer truly cheap desktops and notebooks, but a little looking around makes it perfectly clear that those cheap prices are for entirely stripped-off computers with abysmal hardware; suffice to say, not an option for a serious computer user. ( via Debunking the price myth: Apple vs. Dell )

In my opinion, Apple’s competition is not the $500 Dell or HP. It is the Sony Vaio, IBM ThinkPad and the higher end Dell XPS. If a $500 PC is so good why does Dell and HP sell $1000 machines? Click here for PC Magazine’s 19th Annual Reader Satisfaction Survey ( I did not find one for 2007 or 2008 ). Why is Dell tech support is so bad? Why is it outsourced to India? Costs get high when you have to provide the same support for the $500 buyer and the $1000+ buyer. Everyone suffers. The Dell brand is now seen as cheap just like a Chinese brand DVD player. Throw it away and buy a new one in a year.

I went to the Dell web site and as soon as I selected an Intel Core 2 Duo CPU and 2GB RAM ( same specs as in the MacBook line ) for a laptop the price went to over $1000 and that was for a CPU that was slower than the one the MacBook. I then select at least a 250 GB HD and CD/DVD+RW drive, web cam etc. The price was now just over $1100 about the same as a new MacBook with the same specs.

I the made a similar price comparison; comparing Dell desktops to the iMac.

The myth of the $500 computer dell xps desktop prices
The myth of the $500 computer apple store imac prices

 

Now imagine BMW, Mercedes, Infinity, Acura and Lexus introducing a cheap car? Mercedes tried that with the C230. It failed miserably. I admit that with the market downturn ( that sub-prime mortgage thing ) that luxury brands ( including Apple ) will be hard hit. But now is the time for them to really promote the value of their product not cheapen it. In the end it all comes down to what you want to do with the machine. If all you want to do is run a web browser and sync music to your MP3 player then a $500 computer might suit your needs. Just don’t expect Apple to make one.

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3 responses on “The myth of the $500 computer”

  1. To start with a $500 machine is not a bad idea. If all you ever intend on doing is surf the web, shop online, email, upload photos to your social networking site of choice then yes the $500 machine is for you and I would not recommend getting a Mac, unless its a Mini. Once you start thinking of doing anything else as you pointed out, “it no longer becomes the $500 machine”.

    I can agree with you for the most part on your laptop comparison. One thing that was missing in the hardware specs were any mention of the video card/chipset. The Macbook was using the Intel GMA950 chipset for video and just recently they were upgraded to the GMA X3100 these use shared ram with the system itself. The base XPS1330 uses the same video but it at least offers an upgrade to a Nvidia based card with discreet memory. Again, if the primary use is surf, email, photos, music this doesn’t make a difference. This will change as more software development is done to try and take advantage of the GPU processing capabilities. This isn’t just about games but also video and photo editing. Just look at Pixelmator which makes heavy use of Core Image.

    The XPS1530 starts with a discreet Nvidia based graphics solution, plus it has a larger screen. It would have been better to compare that one to the Macbook Pro. The XPS1530 I started to build against the Macbook Pro came in at $1694(excluding warranty).

    I have to disagree with you on your comparison of the XPS720 to the iMac. Yes prices are comparable along with screen size, but the iMac is using an older generation of Core2 processor. The bus on the iMac is 800MHz, the XPS is 1333MHz. Yes this will make a difference in user experience when you start doing anything more than web surfing or email. Ripping music or video, photo editing, etc.. The iMac uses SO-DIMMs (as in laptop memory, as in more expensive) and only 1GB to start. The XPS720 starts with 3GB and uses standard 240-pin DIMMs. Plus you gain the benefit of expandability at the cost of an extra “box” sitting there. That is an esthetic trade-off.

  2. Khurt, you are presenting a good point, but are forgetting one major point (which Microsoft had figured it out LONG LONG time ago.).

    $500 PC vs mac, Who is their target audiance? and what % of the market is this target audiance? Now the users are getting more savvy than they used to be 10 years ago or even 15+ years ago when Microsoft came out with their first software. Microsoft products are not cheap btw, but their advertisement and their target audiences is targeted for majority of the people who would go and buy these softwares.

    Microsoft knows, they’ll loose their battle with people who are really savvy, and know what will get them more for their $ in long run, (like educational, government (local and state and even country level), financial, and even small consulting companies), so what does microsoft do in case of educationl and govermental industry? It gives out softwares and hardwars (partners with Dell/HP/IBM etc if they don’t have the hardwares themselves) for free or almost inexpensive than it is for normal users.

    Now doing this, microsoft like any other companies, have moved their development area outside of USA (instead of saying they are outsourcing, they are now saying we can’t find TOP quality Engineers in this country, so we are going to India and China to find them and hire them there.) (interesting info on CSPAN. http://12.170.145.161/Search/basic.asp?ResultStart=1&ResultCount=10&BasicQueryText=microsoft

    ).

    After all that rambling.. the point is $500 pc is not a myth, as the saying goes “People will buy what they see”, so how well do you advertise your products and make it seem like it is really user friendly?

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