HOT TOPIC ? PC Price Erosion

Prices are falling. Asus’ Eee PC ultra-portable is available for £219, with a desktop version to follow. You can buy entire systems, with a PC, a monitor and a printer, from supermarkets for less than the price of a top-of-the-range graphics card and in the States, Everex sells a sub-$200 PC through Wal-Mart. That’s under £100, for a brand-new desktop PC. Computers have never been cheaper. But what effect is this having on the market?

Opinion is divided as to whether the computing market has reached rock bottom in terms of price levels. Jon Atherton, group vice president at Entatech, believes it has: "If you look at high-end laptops, price erosion is not similar to the budget PCs. In fact, many current vendors are making a loss for market share. Also, the quality of the £200 laptop will not be of any long-term benefit."

Duncan McAuley, purchasing director at VIP, disagrees. "With Asus having launched the Eee ultra-portable notebook at £219, it’s clear that there is still room for PC prices to drop further. "And with the Eee PC rumoured to be selling even cheaper in the US, there would seem to be some room for even more price erosion over here to bring us in line."

Mark Glasspool, general manager of PC Systems at Computer 2000, doesn’t know if prices are going lower, but he does see a clear message for retail: "Who knows for sure?" he asks. "What we do know already is that making money simply from selling a PC is not enough to keep a reseller or a retailer in business. The sale of a PC should be seen as an opportunity to add more value, through service, support and maintenance, and also through the sale of add-on products such as projectors, laptop bags, data connectivity cards, docking stations, widescreen displays and so on."

So, if computers are to fall even further in price, where could the savings be made? "Using a Linux based operating system rather than Windows is the most obvious area," says McAuley. "Whether this proves to be an acceptable alternative from the end user perspective remains to be seen. As an authorised Microsoft distributor, VIP supports and recommends Microsoft’s operating systems to our customers.

"Also, using flash-based storage, rather than a conventional hard disk drive, brings significant savings. Simplified models such as the ASUS Eee PC can function with a reduced onboard storage capacity, meaning they can take advantage of cheaper, solid state flash storage."

Atherton has a similar take on the matter: "OS software seems the likely item that could be reduced but this won’t happen," he says.

With prices this low and margins cut to the bone, who is making money asks McAuley, echoing Mark Glasspool’s earlier point: "The only real money to be made at the entry level is from add-ons, as the products themselves offer very slim, if any, margins. To be successful, smaller retailers have to cross-sell and up-sell by offering add-on services such as installation and after-care or accessories at the point of sale."

"Manufacturers are making money, but we are all affected now with gross profit throughout the whole chain," adds Atherton.

With so much attention paid to ultra-cheap PCs at one end of the market and high-end, ultra-performance computers at the other, it’s easy to come away with the impression there’s very little in between. But is this actually the case?

"That’s not my perception," says Glasspool. "There are plenty of good, powerful systems that come with additional features and power, but still offer tremendous value. It’s worth retailers focusing on these systems as they provide good up-selling opportunities."

According to Atherton: "We seem to focus on the cheap pricing in the market place. Companies need to ensure they are able to up-sell from £200. Many retailers train their staff to do this and ensure they are focused on the mid-to-high end."

Glasspool agrees: "It’s really all about finding out what the customers want to do. If they want to use a system for home entertainment or games, for example, they need more performance.

"If they want to work on the move, they might need a more robust system. When you look at the higher-spec systems – the ones that carry a four-figure RRP – they give the customer a lot more and that premium is well worth paying, and there’s plenty of choice in between."

So where will the future take us? Atherton predicts: "In five years, fewer brands and similar pricing. Perhaps in 10 years, even fewer brands, fewer retailers and possibly higher pricing." Not the most optimistic of predictions, then…