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To: Skeeter Bug who wrote (24518)	7/11/1999 11:33:00 PM
From: Tenchusatsu	Read Replies (2) \| Respond to of 93625

<both pc makers and isps are reducing the total cost of ownership to get their bpxes and servises moving. why? they aren't moving now - at least not the way they want.> Funny, I thought not everyone was suffering huge inventories and execution problems like Compaq. ;-) Seriously, you are right in one sense, that the average selling price for PC's are going down. But so far, that "giant sucking sound" of PC profits going down the drain have only hit some companies. Others like Dell are still prospering very nicely, even in the midst of an Asian crisis. <it is total poppycock that prices get reduced just b/c prices for componenets or efficiencies improve. my job is to improve efficiencies and, given the choice, my company would keep the savings from these sources and tack it onto the bottom line.> But your company would have the power to drive prices down should the need arise, right? Your argument here is just reiterating the old argument that market demand sets the prices, not cost efficiencies. But don't you think the increased efficiency has led to higher supply, thus leading to lower prices? Companies like Compaq who screwed up in the supply side of things found themselves with an inventory that they had to sell off at low prices. The same argument can be used to strike down the argument that DRDRAM is too expensive. Sure, manufacturing costs are higher than SDRAM, but the selling price has nothing to do with manufacturing costs. Well, not really. More accurately, it's the lack of supply that's driving the price so high. Once the supply increases due to more production efficiencies, the price will naturally fall until one day, DRDRAM falls below the price of SDRAM. Then the guys who are supporting SDRAM will find themselves falling behind because they weren't first to market with DRDRAM. Tenchusatsu

To: Skeeter Bug who wrote (24518)	7/12/1999 1:22:00 AM
From: Dave B	Read Replies (2) \| Respond to of 93625

Skeeter, db, this analysis is not complete. 1. everyone can't use netzero - their system would crumble. Netzero does not advertise that their service is free until too many people sign up and then they're going to start charging. It's free forever, and they'll have to add capacity to keep up with usage. How do they pay for it? See the next answer. 2. i'd also venture an educated guess that netzero has forced advertising. my service never did. not a big deal? ask those who left si over just this issue. Yes, they do put up an ad. It's about the same size, maybe smaller than the Geocities ads that pop up when you visit their web site. But you're walking a fine line here if you're trying to claim that people are so price conscious that they'll commit to a 3- or 4-year relationship to get a free PC, but won't put up with a banner ad to get free internet access. That would be wrong. The price conscious group wants to pay as little as possible, as evidenced by the following article in PC Week: Free-PC.com gets 500,000 requests in two days By Maria Seminerio, ZDNN February 10, 1999 5:29 PM ET Officials at the Idealab startup Free-PC.com say they're baffled by the overwhelming response to their advertising-supported free hardware offer and want to expand the program. "It's just been unbelievable," said a Free-PC.com spokeswoman, saying no one at the company expected the stampede of half a million people who applied between Monday and Tuesday for a free PC. Free-PC.com said Monday it would offer 10,000 free computers to those willing to sit through constant on-screen advertisements. Half a million people applied to get a free pc that showed constant ads and requires that they be able to track everywhere you go on the web!. If half a million people will do that, they'll sign up for free access through netzero and suffer those ads. Not even a question. So the "free pc with internet access" deal is still a crappy deal because you can get the same functionality without paying an exhorbitant leasing rate. why do prices get reduced in pcs? it is total poppycock that prices get reduced just b/c prices for componenets or efficiencies improve. my job is to improve efficiencies and, given the choice, my company would keep the savings from these sources and tack it onto the bottom line. Then your company would quickly go out of business in a competitive environment. Having worked for one PC hardware company and having consulted to others, I can tell you that they all have specific pricing roadmaps that show exactly when Intel is reducing the price on their processor (as well as HDD price declines, etc.) and how that maps to price reductions on their own systems. It's absolutely linked. In fact, I'm actually showing a slide with that roadmap in a presentation I'm doing to a client on Tuesday. Forecasts for products are then produced around these specific price declines. Forecasts go up as systems move toward the "sweet spots" (the highest volume prices) and then drop as they go below that price or reach their end-of-life. If they don't drop prices to match component declines, they'll lose the business because the other guys will pass along those drops. That's exactly what happened to Dell this year in the quarter that ended in January. They didn't bring down the prices in line with component drops and lost business. They corrected that in Q2. Any company that wants to stay in business has to either meet and beat the competition's price if the products and services it offers are exactly equal, or find a way to differentiate itself. If you can't do it through product (say, like, being the only company that offers high-performance RDRAM in your computers <G>), then you have to do it through services and support. Pretty basic business school stuff. it is pure supply and demand. there are x boxes to sell, what price can we charge to sell them all - or at least those we don't want to store in inventory. Absolutely wrong. See above. It's "how many boxes can we sell at the price points we project them to be at over the next N months? Tell manufacturing to build that many." All the forecasting and pricing models are built on a cost-plus basis (take your product cost and add enough on top to cover your overhead costs and profit). That is reality. ;-) Dave