Slide in home-computer prices is expected to stall next year
Las Vegas, Nev. — Don't expect computer prices to plummet next year. This was the opinion of many of the people who gathered here recently for the industry's largest trade show.
In the past, computer prices have been dropping by 20 to 25 percent a year. In the home computer arena (machines costing less than $1,000), prices have fallen even more dramatically, due to a savage price war between Commodore, Atari, Texas Instruments, and, more recently, Coleco. Atari has suffered large losses on its computers as a result. And the experience was so costly for Texas Instruments that it has abandoned the market.
IBM's long-awaited home computer, the PC Jr., appears to have broken the vicious price-cutting cycle. Pricing their machine at $700 to $1,300, IBM comes into the high end of the home market and gives some relief to other manufacturers. After the PC Jr. was unveiled, Atari and Coleco raised their prices.
''Every one is breathing a sigh of relief,'' observes David Pava of Byte Industries, one of the nation's oldest computer chains.
Up in the realm of the so-called professional computers, those in the $2,000- market, the IBM Personal Computer (IBM PC) has become the de facto standard. Dozens of companies are building machines that duplicate the IBM PC's manner of operation. In doing so, they are able to capitalize on the vast amount of software written for the IBM. These machines, dubbed IBM PC clones, must use a number of the same computer chips that the IBM PC employs. As a result, the demand for basic components has outstripped the capacity of component manufacturers to make them. This has meant that IBM and its bevy of (more-or-less) compatibles have had trouble meeting popular demand.
''Because of the limited supply of components, we don't feel any big pressure to drop our prices,'' acknowledges William Diaz, president of Columbia Data Systems, which produced the first of the IBM clones. Some industry observers say that this shortage will reduce the amount of retail discounting that has prevailed recently.
Cyril Yansouni, general manager of Hewlett Packard's Personal Computer Group, also foresees steady prices. But he anticipates that the power of the computers will continue to increase. So buyers will be getting more for their money rather than paying less for the same capability.
One dissenter on this view is David Kay, president of the Kaypro Corporation, which sells a popular transportable. He anticipates continued price cutting: ''I think prices will drop substantially. The PC Jr. leaves a gapping hole in the market, and I expect Japan Inc. to move in.'' Full-feature computers with floppy disk drives will drop below $2,000, he predicts.
Of course, hardware is only half of the picture. The price of software, the programs essential to any computer system, are also important. Here, too, the outlook for stable prices appears to hold, with a few exceptions.
John Raffo, president of the software company Leading Edge, has said that people are shopping around for the best buys in hardware, but not in software.
''Users identify price with quality,'' he argues.
This perception appears to be borne out by the experience of Business Systems. Last year it came out with a $79 integrated software package for the popular Apple II. This year it has upped the price to $179. They found that users didn't appreciate the quality of their product at the lower price, president Alan Dziejma says.
Rather than reduce the price of individual programs, a number companies are combining several programs into a single, more expensive package. Thus, software houses like Peachtree and Information Unlimited Software have recently bundled a number of their programs into a single package and are selling them for about half the price of the collection if purchased individually.
As with hardware, there has been considerable price cutting on software for home computers. But observers say most of this has centered on programs that haven't been selling well. As the drop in computer prices moderates, analysts say they expect a similar effect on the software side.
The sticker price on some popular application programs, such as word processing and electronic spreadsheets for financial planning are also dropping. This is partly due to competition and partly due to the fact that newer programs with more features are displacing older programs in the higher price bracket.
But, at the same time, the newer and more complicated software packages are commanding even higher prices. For instance, the program 1-2-3 from Lotus, which integrates a spreadsheet with graphics and limited filing and writing, is rapidly replacing Visicalc, the first spreadsheet program, as the most popular program. Visicalc once sold for $350. It's price is now $250, while that of 1-2- 3 is $495.
One reason software prices are not expected to drop is that the cost of developing new programs has grown substantially. By one estimate, it costs $200, 000 to $500,000 to develop a new program and takes sales of 20 times the development cost just to break even. The newer, more powerful computers allow much more complex programs. But programming is labor intensive, so this complexity means much higher development costs. Even though the market is growing rapidly, this means continued high costs for most new types of software.