Buying Computers: Keeping Up With Falling Prices

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For Steven McBride, the official in charge of buying instructional computers for the West Virginia education department, a trip to the local electronics store can be a painful reminder of the economic realities of the computer revolution.

The price of computers continues to fall steadily as the industry develops and matures.

Mr. McBride, for example, said he recently bought what he considered to be a "loaded" machine at a very reasonable price for his personal use.

"I thought I had a wonderful deal," he said. "It's unfortunate, from my point of view, that that exact same computer could be purchased for $800 less today."

Ditto for the machines he is buying for the state's schools.

Mr. McBride spent last week negotiating with the International Business Machines Corporation in the hope of modifying a long-term contract with the computer maker to supply machines to schools in the state.

In 1989, the state signed a 10-year contract with I.B.M. to buy $70 million worth of computers to help teach reading, writing, and mathematics.

But today, better computers are selling in retail stores for considerably less than the bulk price stated in the contract.

"It's just the nature of the computer industry--hardware prices tend to go down," Mr. McBride said.

West Virginia is only one of many states and districts that are facing similar difficulties as computer prices plummet.

And many do not have the flexibility built into their contracts to negotiate prices, as West Virginia does.

Price and Performance

The falling computer prices have other consequences, Mr. McBride noted.

High prices, for example, translate into less technology in the hands of students. So-called "basic" computers today often are equipped with cd-rom drives, sound cards, color monitors, and other technical trappings that even the most advanced machines could not boast as recently as five years ago.

This "price to performance" ratio can be the bane of computer buyers, and states locked into high-priced contracts might not be able to take advantage of these technological advances.

While not familiar with the specifics of the situation in West Virginia, Linda G. Roberts, the technology adviser to U.S. Secretary of Education Richard W. Riley, said schools generally have been slow to grasp the intricacies of the technology market.

She added that even those states and districts that have tried to cope with rapid change are often hindered by the rigid and antiquated procedures of school purchasing.

And frequently, she noted, inability to respond to rapid changes in computer power and pricing has encouraged schools to hang on to outmoded equipment.

"The real problem that we've had is what I would describe as very fickle investment in technology," she argued in an interview. "Districts and states and even communities have these notions of 'one-time investment' [when] you pass a bond referendum and buy the computers."

"The trouble is," she added, "if you didn't think about buying the applications that you really need, and supporting the people who were going to use them, then it didn't matter how much technology you were buying. You were kind of setting yourself up for failure."

'Dramatic' Price Drops

The dramatic tumble in computer prices in recent months, fueled in part by manufacturers' attempts to tap the "back to school" computer market, has only made the price gap worse.

On average, the price of personal computers may well drop by as much as 25 percent by the end of the year, as computer makers brace for Christmas sales, industry experts say.

Moreover, the growing school market has lured a larger number of companies, increasing price competition in a niche market that once was dominated by Apple Computer Inc.

"The price of hardware over the last few years has just dropped so dramatically," Mr. McBride noted. "It's difficult for contracts to reflect those changes.

But aside from the real price reductions, officials like Mr. McBride also draw criticism from observers who do not understand the nature of large contracts for paying too much for machines.

"We tend to pay what may be viewed by the public as a little bit more for computers than the prices charged by retailers," he said. "People think, 'They're buying them in quantity, so why can't they get a better price?'"

But such a hasty analysis overlooks the fact that West Virginia's contract with I.B.M., for example, also includes an agreement by the manufacturer to provide technical support over a toll-free telephone line as well as on-site assistance, regular visits to schools by maintenance personnel, and teacher training costs.

Those add-ons contribute substantially to the apparent cost of each machine.

Mr. McBride estimated that since the first computers were bought under the contract in 1990, the state has spent roughly $35 million to purchase some 13,000 machines at an average cost of $2,692.

He said last week he was confident the price negotiations with I.B.M. would end favorably.

"I absolutely am very optimistic that we're going to see a significant reduction in the price of the computers," he said. "We're going to be able to reach more students with the technology."

Vol. 14, Issue 07

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