Special Report: TECHNOLOGY: WHAT TO BUY
WHY PAY MORE? WELL... PC deals abound-including freebies-but don't aim too low
BY PETER BURROWS
11/15/1999
Business Week
Page 214
(Copyright 1999 McGraw-Hill, Inc.)
For personal-computer shoppers, this must seem like nirvana. Forget about spending thousands of dollars for a new computer, trumpet countless ads these days. Now, with the Internet emerging as the primary reason to boot up a PC, all you need is a basic machine, available for as little as $400 without a monitor. And with Internet service providers offering hefty promotions to sign on new subscribers, you might even get one for no money down--or, better yet, for free.
That freebie pitch was mighty compelling to Cathy Kirby, a 42-year-old administrative assistant from Salida, Calif. In exchange for filling out a questionnaire about her interests and putting up with advertisements that cover 25% of her monitor screen, she actually paid nothing for her new Compaq Presario PC and Net service from Free-PC Inc. ''I know what I need, and this gives it all to me,'' says Kirby, who uses her PC to write letters, make greeting cards, play games, and buy everything from gifts to pet food online.
That's fine for Kirby, but, for most people, these cheapo PC deals don't look nearly so attractive after you read the fine print. Free-PC essentially runs a lottery--and so far, just 30,000 of the 1.3 applicants have been given free computers. And even PC rebate deals that everybody can take advantage of may not be bargains over the long haul. Why? Most of the $400 rebates require you to sign up for years of Net service at $20 a month. Long before the time runs out, faster broadband access for around the same price should be widely available--and there you are, stuck with slow-as-molasses dial-up service. ''There could be some very, very upset customers,'' says Dell Computer Corp. Chief Executive Michael S. Dell.
Indeed, PC shoppers may make a mistake if they just aim for the lowest price this Christmas. Our advice: Shop the old-fashioned way. Look for the best machine to meet your current needs, one that offers the power and flexibility to handle what the Internet holds in store over the next few years. And since PCs remain crash-prone devices, pay careful attention to support. While companies that sell mostly through retailers have largely matched direct-sales juggernauts Gateway Inc. and Dell on price, the direct-sales companies tend to offer superior customer support.
There are PC deals out there for every pocketbook and every type of computer user--from fanatics who want every last bell and whistle to people content with the basics. Pound for pound, prices are significantly lower than a year ago. Since 1996, the number of home PCs costing less than $1,000 has rocketed from 12% to 41%, and no-frills sub-$600 machines are now 7% of the total, says International Data Corp. Even Apple Computer Inc.'s slick-looking all-in-one iMac goes for just $999. And other manufacturers are slowly bringing out innovative new designs at affordable prices. Gateway's new $799 Astro PC sports the all-in-one design of the iMac, making it no bigger than a typical monitor.
Indeed, shoppers who resist the temptation to grab the cheapest PC will find that coughing up the dough for a powerful machine is not all that painful. While the difference in price between a no-frills machine and a high-end screamer used to be thousands of dollars, now only the most demanding consumers will need to spend more than $1,300. That should buy a model with a chip running at 400 MHz, 96 megabytes of memory, a 56-kilobit modem, 10 gigabytes of disk storage, and a 17-inch monitor--plenty for most personal computing needs. INSURANCE. Would you want to spend more? There is no way you can buy your way out of the headaches that come with using a PC. Even with faster processors and Microsoft Corp.'s Windows 98 software, high-end machines won't boot up, surf the Web, or run office programs any faster than basic machines. But they will buy some insurance against obsolescence--and at a price that won't break the bank. David Webb of Lafayette, Colo., just bought a Gateway PC with a Pentium III processor, monitor, and Zip drive for added portable storage. He paid $2,000. ''I go on a blind faith that all of these developments--faster processors, bigger disk drives, 3-D graphics processing, etc.--are things I really need,'' says Webb. ''So far, so good.''
What's right for you? If you're a first-time buyer interested in surfing the Net and using e-mail, there are a slew of solid choices based on Intel Corp.'s Celeron chip, starting as low as $399, without monitor. Take the eMachines 400i3 eTower. While this entry-level machine lacks the trimmings of pricier models (such as keyboards loaded with hot keys to launch your favorite programs or dials to turn up the volume as you play CDs) it does a decent job at basic computing tasks. There is a hitch, though: It offers limited customer support, with just 15 days of free-of-charge calls, vs. 90 days for most rivals. ''eMachines support is a little skimpy,'' says International Data Corp. PC analyst Schelley Olhava. JUKEBOX BOXES. If you play games or want a machine that's capable of handling byte-hogging tasks such as editing home videos, you'll want a system featuring Intel's Pentium III chip, 128 megabytes of memory, and a larger disk drive. And this year, there's another excellent reason to nab a higher-end machine: With enough oomph, you can be your own deejay. Hewlett-Packard, Dell, and NEC offer models with high-quality sound and preloaded software to help you store, play, and arrange songs downloaded from the Net to your hard drive. Dell sells a PC with a 37-gigabyte drive--capable of storing roughly 10,000 songs in the popular MP3 digital format. Jesse Klein, a senior at Salem State College in Salem, Mass., finds his PC has begun stealing time from his stereo. ''I have a 100-disk changer on my stereo, but I barely use it,'' he says. ''It's cheaper to download music to my PC than to buy lots of CDs.'' If you're not ready to give up that high-end stereo, it might be time to spring for a PC model with a CD-rewriteable drive. That usually costs about $200 extra. Besides providing an easy way to back up important files, it lets you create your own CDs, either with music downloaded from the Net, or taken from your existing CD collection. In August, around 10% of PCs sold featured this technology, and that should rise to 20% by the new year, says PC Data analyst Steven Baker. ''It's definitely this year's killer app.'' Hewlett-Packard makes its own CD-RW drives and has done a good job integrating the necessary software into compelling products. One example is the $1,400 Pavilion 8565c, which features a 500-MHz Pentium III, 128 MB of memory, and a CD-RW drive.
Avoiding PC obsolescence is a big concern for shoppers--no matter what you pay for your computer. Fortunately, there are a few new ways to get an affordable PC and future-proof yourself at the same time. One possibility is to buy a computer by the subscription method. That way, you pay a monthly fee, with no downpayment. For $24.95 a month, San Francisco startup PeoplePC Inc. will provide Net access via UUNet, discounts from e-commerce providers including Amazon.com (5%) and 1-800-FLOWERS (10%), along with a basic Compaq or Toshiba PC. The icing on the cake: PeoplePC will replace the machine for free should you sign up again after your three years are up, making it easy to stay in step with whatever new technologies come along.
Some computer makers are starting to follow suit with their own trade-up options. Starting in October, eMachines Inc. customers who sign up for two years of its ISP offering will be able to replace their PC at the end of the term for just $99. Dell is going a step further. Customers who take its $400 dial-up ISP rebate will be able to upgrade to broadband service offerings when they become available, promises Dell Consumer PC chief Paul D. Bell. CABLE WATCH. If you're planning on upgrading someday to broadband cable access, be sure to get what's called a cable-ready PC. Most people will probably want to switch to broadband at some point, since it makes possible such wonders as video on demand. Not only is the Net access faster, and always on--no need to dial in--but most plans call for month-to-month payments that you can cancel whenever you like.
Even if all you care about is buying a basic PC the old way, there are some jazzy promotions to watch for. Gateway just began offering $350 in savings on merchandise and services from the likes of art.com, Babycenter.com, and garden.com. And shoppers who buy a 400-MHz PC from MyfavoritePC.com can get a $400 credit from E*Trade for opening an account with the online broker (minimum balance $1,000).
Maybe the most pressing question facing shoppers is not what, but when, to buy. Because of supply disruptions caused by the Taiwan earthquake and the rising cost of memory chips, many experts don't expect the typical price drops as Christmas approaches. ''I wouldn't be surprised to see average selling prices rise $100,'' says Tom Fritz, head of merchandising for PC retailer Micro Center. So shoppers who are quick with the checkbook may save a few bucks. And should actual shortages occur, shoppers who want sub-$500 bargains may be disappointed--since PC makers will use available parts to build more lucrative models.
There is one exception to the ''early bird'' rule. If you're bent on getting a top-of-the-line PC as a gift for someone, you might be better off leaving an IOU under the tree. Intel is expected to cut the price of the 700-MHz ''Coppermine'' version of the Pentium III, introduced in late October, from $750 to around $650 by early next year, say analysts. And by that time, the price of memory and of the sleek flat-panel displays that grace many high-end systems may have dropped as well. What's more, Intel will have begun shipping chips based on Rambus Inc.'s newfangled memory technology, which will allow PCs to whisk data around their innards at up to 800 MHz, vs. 100 MHz today--a leap forward in PC performance that could add new levels of realism to games and video.
There may not be any such thing as PC nirvana, but this is about as close as you're likely to come for a while. k
A PC For Every Shopper
COMPANY MODEL PRICE
FOR THOSE WHO CRAVE POWER
DELL XPS T700 $2,520
HEWLETT-PACKARD Pavilion $1,899
8575c
GATEWAY Essential $1,399
450SE
FOR THOSE WHO WANT TO SCRIMP
APPLE iMac $999
COMPAQ Presario $699
5460
FOR THE NO-FRILLS CROWD
EMACHINES eTower 400i3 $399
GATEWAY Astro $799
NO MONEY DOWN AT ALL
PEOPLEPC $24.95
a month,
for PC
and ISP
service.
COMPANY FEATURES
FOR THOSE WHO CRAVE POWER
DELL 700-MHz Pentium III micro-
processor, 128 MB of memory,
20.5-GB disk drive, 17-in. monitor.
HEWLETT-PACKARD 550-MHz Pentium III micro-
processor, 128 MB of memory,
20-GB disk drive, 17-in. monitor.
GATEWAY 450-MHz Pentium III micro-
processor, 64 MB of memory,
10-GB disk drive, 17-in. monitor.
FOR THOSE WHO WANT TO SCRIMP
APPLE 350-MHz G3 microprocessor,
64 MB of memory, 6-GB disk
drive, 15-in. monitor.
COMPAQ 475-MHz AMD K6-2 micro-
processor, 96 MB of memory,
8-GB disk drive. No monitor
included.
FOR THE NO-FRILLS CROWD
EMACHINES 400-MHz Celeron micro-
processor, 32 MB of memory,
4.3-GB disk drive. No monitor
included.
GATEWAY 400-MHz Celeron chip, 64 MB
of memory, 4.3-GB disk drive,
15-in. monitor.
NO MONEY DOWN AT ALL
PEOPLEPC 366-MHz Celeron micro-
processor, 64 MB of memory,
6-GB disk drive, 15-in. monitor.
COMPANY THE SKINNY
FOR THOSE WHO CRAVE POWER
DELL If you're willing to pay for the latest and greatest,
this is a good choice. It gives a lot of speed and
storage for the buck. One caveat: Analysts expect
Intel to drop the price of the new 700-MHz processor
by early next year. It might pay to wait.
HEWLETT- A great choice for music lovers. Has a CD-rewriteable
PACKARD drive, a play-only CD/DVD drive, and recording soft-
ware. It's a snap to mix your own CDs, either from your
collection or from songs downloaded off the Net.
GATEWAY A solid machine, especially for game players. It's got
great audio and whizzy graphics. Gateway's friendly
online support is a big plus.
FOR THOSE WHO WANT TO SCRIMP
APPLE This machine's all-in-one design and friendly soft-
ware guides make it easy to get online--where its
Sherlock search engine makes it easy to find answers.
Five lollipop colors make the iMac the best-looking PC
in the bunch.
COMPAQ What sets off this plain-vanilla offering is Compaq's
bundling deal. Buy a Compaq printer and monitor, and
Compaq's $200 rebate brings the total price to just
$797.
FOR THE NO-FRILLS CROWD
EMACHINES It isn't pretty, and it's slower than other models. But
it has a $400 rebate offered by Internet service
providers, which locks you into three years of monthly
fees--and makes the PC free. But beware: eMachines
offers only 15 days of free phone support.
GATEWAY It's no screamer, but it has an appealing design that
keeps cables to a minimum.
NO MONEY DOWN AT ALL
PEOPLEPC You get Internet service, a basic PC made by Toshiba
or Compaq, and deals from some e-commerce com-
panies, including 5% discounts from Amazon.com.
PeoplePC promises to replace the PC every three
years.
DATA: BUSINESS WEEK, COMPANY REPORTS
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