Why aren’t computers getting cheaper?

When you study the history of computers, one recurring theme is that computers get smaller, cheaper, and faster over time. So why is there a floor on computer prices? Why aren’t computers getting cheaper anymore, especially at retail?

Some of it depends on your definition of computer

Why aren't computers getting cheaper?
A big reason why it seems like computers aren’t getting cheaper is inflation. A dollar doesn’t buy what it used to, so the $199 computer today is slightly cheaper than the 2018 model priced at $199, even though the price didn’t change.

When you broaden your definition of a computer, they certainly are still getting cheaper. Take the Raspberry Pi Zero as an example. It is a $10 single board computer. 20 years ago, a computer motherboard with a comparably powerful CPU and a comparable amount of memory would have cost several hundred dollars. When the original Raspberry Pi Model A came out in 2012, it cost $25. And it was less powerful.

But at the time, that original Raspberry Pi Model A was a really good deal.

Now, depending on your project, you can end up spending another 50 to 75 dollars to turn a Raspberry Pi into a viable computer. But that is still a lot of computer power for less than $100.

Why price floors exist

The cost of making computer parts does not exist on a linear scale. Not all of the costs associated with making a computer chip come down at the same rate. Take the example of the venerable 6502 processor that powered so many of the great retro computers and game systems of the 1970s and 1980s. You can still buy that CPU today. One of the original designers of that CPU started his own company and licensed the technology, and that company is still in business.

But the 6502 is still a $10 CPU. Now, we are talking $10 in 2021 versus $10 in 1991, so if you factor in inflation, the chip has gotten cheaper. In today’s money, it was a $20 chip 30 years ago.

Technology has helped that CPU get cheaper. The CPU core is much smaller and cheaper today than it was in that CPU’s heyday. But the CPU packaging costs about the same. So as long as you need that CPU in something compatible with its original packaging so you can use it in an existing design, that CPU isn’t going to get much less expensive.

That said, if you can get creative, there probably is some room. If a system on a chip type design is an option, you can absolutely license that CPU core, and everything else you need, then it’s possible to reduce the amount of packaging needed by putting what used to be multiple chips on a single chip. That is one way to drive down costs, if you can recover the design costs to make the change.

One reason the Commodore 64 never really managed to fall below $99 in cost was because its manufacturer couldn’t consolidate the chips any further than they did with the technology they had available to them.

Inflation

The other factor in computer costs is inflation. Inflation has a tendency to sneak up on you, because usually it’s gradual. In 2021, inflation is high enough that we are able to recognize it to a degree. But the price difference between, say, 2018 and 2019 were small enough we may not have noticed.

If you are unfamiliar with the concept, inflation is the observation that money decreases in value over time. A dollar buys less today than it did in the past.

Inflation drives up costs of some things faster than others. Houses come to mind. My parents bought a house in 1973 and paid $20,000 for it. Adjusting for inflation, that house should cost $123,000 today. It’s probably closer to $140,000 house today.

When you factor in inflation, computers are getting cheaper. Somewhat cheaper, at least. In 1998, the cheapest computer you could buy on the market new cost $399. In today’s money, that would be $668. You can get a computer today for less than $668. And it will be a much better, faster computer than that junker from 1998. By modern standards, that computer was expensive. By 1998 standards, it was cheap, but it wasn’t great.

Pricing pressures

There were inefficiencies in the computer market in the past. Today, the only premium computer brand left is Apple. In the 1980s, there were other companies that sold overbuilt, over designed machines the way Apple does. For example, IBM had a top of the line computer they intended to sell with a hard drive. The system literally didn’t work right without a hard drive in it. The thing wouldn’t turn on. IBM had a workaround. If you didn’t want a hard drive, there was a dummy device they could put in the system that allowed the power supply to function without one. That dummy device was a $2 resistor, but it had a fancy power connector and a fancy metal cage. This dummy device probably cost $25.

Competitors simply used a power supply that didn’t care if it had a hard drive connected to it. That power supply may have been cheaper or it may have been more expensive. But the price difference certainly was less than $25. So just with that simple little thing, it was possible to undercut IBM’s price by $25.

The price wars of the 1990s drove out most of those inefficiencies. Replacing metal with plastics was another common cost saving measure.

Over time, manufacturers ran out of corners to cut to reduce costs. The race to the bottom hit bottom. And that’s one reason there were hundreds of companies selling computers in the ’90s while today it’s hard to name 10.

Corporate profits

There is one other factor in computer pricing. The company who makes the computer is subject to its suppliers. And in some cases, there are certain price points that don’t make sense for the suppliers.

CPUs and GPUs are two examples. In 2020, AMD released a $50 CPU. It had mixed reviews, but it sold well. It sold so well, AMD raised the price.

Also in the 2020 time frame, GPU manufacturers all but stopped making $200 GPUs. It’s more profitable for them to put that capacity toward GPUs that cost $400 or more. And if they leave money on the table, their shareholders get very cranky.

That $50 CPU would team up very nicely with a $200 GPU and a few supplemental parts to make a very nice PC that could sell for $400 to $500. But when they can’t keep up with demand for $400 GPUs, there’s no reason for them to bother with the $200 price point.

It’s possible, even likely, that is a temporary situation. But it is holding prices up when history says prices should be trending down. Anomalies happen sometimes.

If it seems like the computer you want at the price point you want should exist but doesn’t, That’s probably why.

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