Consumer Expectations Drive Up Computer Prices People Who Want To Buy Cheap Pcs May Have To Settle For Used Models

Yvette Marrin laughs when people suggest that interest in computers is going to level off.

As president of the National Cristina Foundation, a non-profit group that matches companies that are throwing out old personal computers with individuals who want them, Marrin sees the hunger for computers every day.

“A bank called me yesterday and said they had 50 computers,” she said last week. “I will be placing those. It will take me five minutes.”

The foundation’s work illustrates a paradox that is overlooked in all the hype about technology: While the cost of computing power is constantly growing cheaper, new computers are no longer cheap. People who want cheap computers generally have to buy used ones.

A decade ago, companies like Tandy and Commodore offered new machines for $300 to $700. Some had to be attached to TVs and others had dim screens with just a few lines of text but they performed basic computing tasks like word processing.

They eventually lost the market to IBMcompatible and Apple Macintosh computers. Then, improvements to chips and software, though fast, became routine and the price range for new PCs solidified in a range of $1,000 to $3,000.

Now, the economics of several component makers and consumer desire for power and features, fed by the industry’s marketing, have combined in a way that makes it unlikely that new computers will ever be as cheap as they once were.

“I believe that range will hold for some time to come,” said Safi Qureshey, chief executive officer of AST Research Inc., the nation’s sixthlargest PC maker. “The main reason is the functionality a home user is seeking is continuing to increase.”

Just over 39 percent of the nation’s households owned a PC in April, up from about 35 percent in April 1994, according to Link Resources, a New York research firm. But the machines are predominantly in households with annual income far exceeding the national median of $32,000.

“There is a barrier to entry that’s created by this, and some of the projections about how many people will have computers in their home don’t take that into account,” said David Bunnell, editor of New Media magazine and founder of Computers & You, a center in San Francisco used by hundreds of people each week to learn about computing.

Link found that PCs are in 23 percent of households with income of $25,000 to $34,000, 30 percent of households with income of $35,000 to $45,000 and about half the households with income above $45,000.

Another research firm, CIInfoCorp, reached a similar conclusion using a slightly different yardstick. It reported that, of the base of computers in U.S. households, 58 percent are in those where income exceeds the median.

“As that set of customers starts to saturate and you’re looking for new customers, you have to look at another style” of computer, said Aaron Goldberg, vice president of CIInfoCorp.

He said it is possible for a PC with a 486 microprocessor, CD-ROM drive and modem to be built for under $500. The trick is the hard drive would have to be optional and the machine would have to attach to a television rather than desktop monitor, which is impractical for writing but all right for games.

Such a system would have to fight the speed-power-and-glitz message that now prevails in computer marketing.

“There’s all kinds of snobbery as to what everybody wants in their computer system,” said Tom Danford, director of computer services and teacher of computer literacy courses at Rollins College in Winter Park, Fla. “Ten years ago, guys would sit around and talk about automobiles. Now they talk about chips and cache.”

In addition, the economics of the industry lean against the cheaper machines.

Intel Corp., the leading maker of microprocessors, depends on high margins from the most advanced chips, now the Pentium, for money to design the next generation of chips. The company will stop making 486 chips this fall, leaving them to rivals with lower development costs.

Likewise, the future of many software makers is tied to creating new versions of existing products that can run better or have more features when used with a better PC. Users with less powerful machines are left behind.

And big PC makers are burdened with overhead like factories and support organizations that add substantially to the component costs of a PC.

For cheap PCs, the best bet has become recycling organizations like the National Cristina Foundation or stores like Computer Renaissance in Minneapolis or A Second Byte in Dover, N.J.

“It’s not an organized market that you can really assess well,” said Eugene Fram, a marketing professor at the Rochester Institute of Technology. “But there’s more of that done than meets the eye.”