This Best Buy Circular Says It All

Today's Best Buy advertisement supports the assertion that low prices are killing the PC industry from within

Yesterday, I wrote about how the netbook and its low-ball pricing model have essentially destroyed the PC market and caused consumer to demand unreasonably low prices. Today’s Best Buy circular pretty much makes the same argument, albeit it visually.

Read more in about this topic Explaining Windows 8 PC Sales Over the Holidays.

Here’s the front page of the circular.

What we see here are two non-touch notebook PCs with an average selling price of under $460, not far off of NPD’s $420 average selling price for notebook PCs over the 2012 holiday selling period. That they’re juxtaposed with a $500 Surface—the low-end version without a keyboard—is perhaps not coincidental.

Consumers interested in that low-ball pricing only need to turn the circular page to see the PCs that Best Buy, Microsoft, and the PC industry want you to buy: A selection of 9 more expensive ($599 to $949) notebook computers, some with multi-touch capabilities, which map nicely to NPD’s goal for the industry to “establish a value proposition for PCs in the $500+ price segment.” “[PC makers] need to think [dollars] and not units in 2013,” the firm concluded.

But no worries, cheapskates: There’s a Dell notebook PC running Windows 8 in this circular that just costs $299. (And this PC was actually available in a bundle before Christmas that included some accessories for the same amazingly low price.)

For comparison’s sake, there are also different desktop PCs for $449 to $999. And though there are only a few full-sized (~10-inch) tablets, and oddly no Apple iPads at all, they are amazingly low-priced (aside from the Surface): Just $229 for an Acer Iconia Tab A200 and $299 for an ASUS Transformer TF300, both running Android. Yikes.

Discuss this Article 37

prettyconfusd
on Jan 6, 2013

Has there been any word on why the Windows RT devices are generally as much or sometimes more expensive than comparable Windows 8 devices?

Both the VivoTab and AtivTab are selling for around £550 in the UK (the Surface works out about £500 with a cover) yet you can buy the Atom versions for £500 (Acer W510) to £700 (Samsung and Asus).

RT devices should be competing with these random £250 Android tablets...

I hope CES and 2013 bring in some viable competition as right now there's simply no way the average person is going to spend more on a Windows 8 or RT machine with touch when they could get a non-touch laptop for less, crazy!

mp
on Jan 6, 2013

As Win RT includes Office, my guess would be that MS is charging the makers more for RT than Win 8.

jjMustang79
on Jan 6, 2013

Which is why I think the Xbox Surface tablet will be a 7" device that will not include Office to get the price down to $299. It's a consumption device, not a productivity device. I also think the desktop will be removed, which pegs the release to include the Blue update, which I also believe will convert the entire control panel for RT devices into Metro-styled controls. And the countdown to June's E3 on Larry Hyrb's blog hints at this. This is all speculation on my part, but that's the theory I'm going with.

prettyconfusd
on Jan 6, 2013

Agreed, I think the desktop will be the first thing to go in the first major WindowsRT update. The file picker they have now would be a pretty good way of keeping the file system available somehow.

The Xbox Surface shouldn't be more than $250 though (maybe $299 with some nifty gaming variant of the touch cover), it's got to compete with the Nexus 7 and beat the iPad Mini by a decent margin, imo.

I'd be interested to see what happens to Office at this point though. They have to build out Word, Excel, and PowerPoint in the same way they did with OneNote but having 'proper' Word 2013 is a big draw for SurfaceRT.

Maybe the desktop versions will be available only for screens over 10" whether on the tablet or connected via miniHDMI?

Rishicash
on Jan 6, 2013

Sounds right to me.

prettyconfusd
on Jan 6, 2013

Another quick thought: If Samsung can get out $200 Chromebooks, couldn't Microsoft do $200 WindowsRT non-touch laptops to compete?

There's still more functionality in WindowsRT than ChromeOS.

Gopal Sridhar
on Jan 6, 2013

I see nothing wrong with this circular.For a start the number of units available at those prices are fairly limited per store and are not going to wipe out sales of other PCs.Windows as I have seen it through the years is computing for the masses.If a middle income family has 3 children trying to get through middle and high school-the sub $500 PCs are just right.All 3 kids can get a fully functional PC which will easily last 4-5 years or longer depending on usage for all of their needs-school work/watching videos/facebook etc.I was at Best Buy yesterday and most of the buzz was around the windows section.There were no apple laptops to be had <$1200.Tablets are a different story and I really think Windows tablets will take off this year.The other thing I noticed was the substantial number of all-in-one touch PCs which is where the PC market is headed. I also think that as the smartphones start moving up both in size and functionality-the line between phone/tablet is going to get blurred and may not be very lucrative

satkinsn
on Jan 6, 2013

So let me make a quick argument in favor of the $299 Dell. Assuming it has no hideous, glaring defects - you can watch a YouTube video, surf the net, send email - and further assuming you don't genuinely need a lot of horsepower (you're compiling large programs, doing heavy duty video editing) why doesn't it make sense to trade out some of the experience for price? I would expect that a machine you pay, say, $799 for today will have roughly the same residual value as the Dell three years down the road.

pthurrott
on Jan 6, 2013

Fair enough. I'm sort of internally debating just buying one and seeing what a week with it is like.

rob_kellington
on Jan 6, 2013

I bought a $275 ASUS over the holidays exactly for that - kids need surfing workstations and theses are cheaper than Chromebooks.
But to Paul's point - it creates the perception that Windows machines should be cheap. And even if I need more power to do real work, it is tough to justify spending 3-4 times that amount for a "real" box. "For that much, I can get a Mac"

GoodThings2Life
on Jan 6, 2013

The irony shouldn't be lost that as Google is following Microsoft's 1990's playbook, and Microsoft is following Apple's playbook that Google is succeeding and Microsoft and Apple are falling into the classic "Mac" segment... niche products at a premium price.

Somewhere along the line, Microsoft needs to realize that Apple can never succeed long term (because they'll disappear against Google just as they did against Microsoft previously), so they need to find a middle ground between Apple's "we'll tell you what you want" and Google's "take this or else" approaches. Obviously, Microsoft doesn't want to land in regulatory hot water again, but they have got to be a bit more aggressive than they are too.

pthurrott
on Jan 6, 2013

I agree with this and was just thinking about this.

On the one hand, the one time it does make sense to come in cheap/free is when you're trying to build market share. But on the other, once you've established yourself as the cheap/free alternative, you can't just start charging more. Consumers are used to cheap/free.

sachiwilson
on Jan 6, 2013

A company has to come in cheap when it's doing the same thing others are already doing. If a company develops something new, something that addresses problems in a new and useful way, it can legitimately ask for a higher price.

Alex Alexzander
on Jan 6, 2013

Google is doing nothing but losing money on Android. They have not only made zero dollars on the effort they have lost $12 billion on buying Motorola which has not added any net positive effect to the company. Meanwhile, both Microsoft and Apple enjoy somewhere north of 40% gross margins and actually make billions in profit on their products quarter after quarter.

You couldn't be more wrong. It is Google that is failing. Good thing they have a lot of ad revenue to rescue them.

Mark from CO
on Jan 7, 2013

I agree and have argued that Microsoft's W8 execution has ignored what I think can be argued as the most important segment - the lower end. It is the volume segment, and I believe for the mobile space (see Android in the phone and small tablet space), this is the segment that, over time, will begin to define the market in general (including more traditional desk top computing).

I also don't think it's an either or in terms of capturing market share in one or all of these segments. Microsoft's strategy should be to gain market share in all three segments - low, mid and high price segments. They have tried to hit 2 (Surface RT and Pro). I don't think it would have been that difficult for Microsoft to had a very good offering for the low end as well. I just don't think they view this segment as important - to their peril.

What I don't think is well accepted is that Microsoft doesn't have a lot of time to address its product, execution and strategy flaws. Microsoft can't expect it has the time to get it right by v 3.0. People may well disagree, but my sense of how fast the market is changing, Microsoft only has one more shot (this year) to make it's mark or its mobile device position will be like its initial WP7 position. And a weak mobile device position will only weaken their current strong PC position in the long-term.

Paul - continue to keep the pressure on. Microsoft needs to move at light-speed to get your suggestions implemented!!

jeffskent
on Jan 6, 2013

Automobiles, and every other consumer device made by man, have low priced, economy models for sale all the time. Golf carts, scooters, econo boxes, and used cars all compete in the automobile market. Consumers seem to have a way of determining what are the best value for price products. Many people thought, and still think, that the iPad and iPhone are wildly overpriced. And yet, Apple still sells at more than $500 per share today.

alvatrus
on Jan 6, 2013

For me, the most ironic detail is the offering of a "$49.99" value of subsidised crapware as if that were a good thing.
My next computing device will almost certainly be a Surface, just because I'm wary of any other vendor to make a quick buck on the side at my expense.

tboggs13
on Jan 6, 2013

It doesn't help MS now, but I think we will see touch based Windows devices in the sub $300 range this year once manufacturing capacity catches up.

Also, Windows 8 is new and makers are trying to capitalize on whatever demand is available.

jefferydmitchell
on Jan 6, 2013

Paying a higher price for your new laptop doesn't guarantee a higher quality product or experience. Last year I purchased an Asus laptop for $1000 + tax from a reputable store (not Best Buy) and I deeply regret the purchase, it turned out to be a huge mistake. Not to get into all the gory details, but this machine has been a nightmare of crap drivers, built-in crapware, and nonexistent tech support. Sadly, I can't just keep throwing money at new hardware, so I've kept on struggling with it.

I picked a mid-range product from a reputable brand that I had experience with and was burned for it. I have to wonder if my experience would have been better with a low-ball machine, because that's what I ended up with anyway.

Alex Alexzander
on Jan 6, 2013

@Jeffrey,

Exactly the problem situation I raised yesterday. The PC industry has fallen into a bad cycle of manufacturing absolute garbage. Virtually all of the vendors have no problem with releasing junk even now. They are clueless and they are destroying their own businesses.

It's time for Microsoft to step in and make quality job #1, add a healthy margin and let the chips fall where they will. Personally, if Dell, ACER, ASUS, HP and the lot of them went out of business tomorrow I'd not shed a tear for any of them. Bunch of worthless trash is all they know how to built. Customers have complained for YEARS about the crapware. YEARS and it needs to stop. Bad drivers, come on there is no excuse for this. When I buy a PC laptop, blowing it away, including its recover partition et al and starting over from scratch has always radically changed the experience. But still I have to worry about keyboard that don't absolutely sense each keystroke. Touch pads made cheaply. Horrible screens, namely on the Dell XPS Ultrabook (You know what you did Dell). And it goes on and on.

techstauf4
on Jan 6, 2013

Laptops aside, a glaring omission in this flyer is yet another week without one Windows Phone. Why the heck can't Best Buy fit in one Windows Phone every week among the dozen Android phones?

ad24
on Jan 6, 2013

"low-ball pricing model have essentially destroyed the PC market and caused consumer to demand unreasonably low prices. ".... I guess low-ball pricing is exactly what customers want. If only high-end PC-s were available Win's market share would be just like Mac's, the rest of the market would be picked by a low-cost alternative (hello Android with soon-to-be released MS Office).

davebarnes
on Jan 6, 2013

What's a "circular"?

LemonSaucy
on Jan 11, 2013

It's a form of advertisment similar to a "flyer". It can be one or more whole paper pages of advertising by a single advertiser that is "inserted" into a newspaper (i.e. circulated along with the newspaper). The reader of the newpaper can remove the circular from the newpaper and read it separately, and even carry it to the store if need be etc. etc.

davebarnes
on Jan 11, 2013

What's a "newspaper"?

pthurrott
on Jan 11, 2013

:)

jeffsters
on Jan 6, 2013

Let's not forget that Best Buy uses co-op dollars for this. In other words it puts stuff on sale and advertises whatever it can get suppliers to pony up for. No iPads, Apple is doing fine without paying BB $$$ for ads, Windows Phone, might be that BB isn't selling enough to get the co-op dollars from either the carrier or the OEM. It's not rocket science.

vermonter@hotma...
on Jan 6, 2013

I'm scratching my head, but I'm still not sure what the point of this post actually is.

Yes, the (brief) heyday of the netbook - a fully-functional PC which could do what 95% of the light, casual PC users wanted, at a $300 price - caused PC makers to panic and drop their prices hugely.

But what if a car company had introduced a vehicle that could go 50MPH, got 32 MPG, could seat two people, and cost $5,500- brand new, with the same warranty everyone else offered, wouldn't the price pressure it put on, say, Nissan be a good thing for consumers?

My wife uses a cheap Toshiba netbook. It does what she wants - she tweets, Facebooks, surfs the web, reads her email. How is her purchase of this $300 device "destroying the PC industry?"

I just don't get this theory.

satkinsn
on Jan 6, 2013

vermonter -

Exactly. I don't get the argument either; I mean, what exactly is the bad that's going to come out of cheap, reasonable devices in the hands of a lot of people?

roncerr
on Jan 6, 2013

I googled the words "Dell notebook PC Windows 8 $299" and the two top hits were indeed $299 Dells but they ran Linux! http://www.geek.com/articles/chips/geek-deals-sub-300-dell-vostro-2420-l...

TimG
on Jan 7, 2013

I do web programming work that makes it necessary to work in parallel on Windows, OS X and a variety of mobile devices (iOS and Android phones and tablets and Windows Phone). In my experience, the prices of Windows and Mac machines are generally about the same if you don't want junk. You can get a slightly cheaper Windows machine that's decent, but go much below the price of a Mac and it's just not worth it. Windows' poor reputation definitely has a lot to do with it being installed on so much bargain basement crap.

Daniel D
on Jan 7, 2013

The sad truth is that a there is not that much different between a mid range PC/laptop and a cheap one. They are both loaded with crapware and bult with the lowest cost components.

When Microsoft wanted to beat Netscape, they offered IE free and put it on every Windows that shipped. You couldn't avoid it basically.

Google want Microsofts space, so they put Android on any piece of hardware for free and to anyone who wants it. Its a winning formula.

Consumers have no more loyalty to Microsoft then they had to Netscape. Unfortunately the ONLY way Microsoft will compete with this change in market is to:

- Make Windows Client free
- Make Windows Phone OS free to all manufacturers
- Release a range of low priced, high quality tablets, phones and PC's, that match but never exceed Android equivalents in price. They must always represent better value in dollars, features and quality.
- Tell shareholders to forget dividends or share growth for the next decade - this is about saving the company.

I seriously believe if they don't do this, they will die a slow death, desperately trying to find the customers who just aren't interested in them or their old pricing model.

pratnala
on Jan 7, 2013

Prices of Windows RT devices need to drop. Chromebooks are finding more and more favour

ianw
on Jan 7, 2013

The "problem" is that the masses need to be able to browse the web, send email, use Facebook and Twitter, and view photos. That does not take a lot of hardware, and therefore should be cheap.

Companies can set higher prices by offering some blend of hardware quality, brand image/cachet, or power. But sustaining revenue and margins against the desire for low price and the availability of low-cost hardware is quite another story. Each big company is trying a different formula.

Microsoft's problem is trying to have one cohesive brand that exists in different parts of that space. Not easy.

Avenger30
on Jan 7, 2013

Marketing pros are usually pretty good at figuring customer segments and price point strategies. When sales disappoint, my humble experience is telling me that it is very often caused by confused customers: a confused customer does not buy and postpones his decision… Windows 8 is –really- different and confusing… Yes, there is the Microsoft speech… but OMG… look at this: there is no start button! (LOL) So yes… Microsoft really means it! It is different… and I should buy a different device… but which one? The only clue: it seems that a touch-screen is needed.
One parenthesis on the netbook: I don’t believe it is dead. The “new” netbook is… an android tablet! I also believe that consumers are (rightfully?) realizing that a PC is still needed for “the other stuff” (office-type work, game, photo editing…). Consumers also understood long ago that the more money you put into a PC, the more likely it would remain “relevant” after a few years. But there is this Windows 8 thing: if you need a different device, but you don’t know which one is right, you buy nothing… or a cheap device: who cares if it is obsolete or broken down in two years?
The problem is… there is no cheap Windows 8 device. Why touch-screens only come as the next level feature on high-end devices? Why can’t I get a cheap 17-20” all-in-one, with an “i2” CPU? Yes, Intel, you should also rename your Celeron/Pentium to reinforce the idea that they are not undesirable or obsolete processors but perfectly suitable CPU’s to run Windows 8.

studio4llc
on Jan 8, 2013

"... or a cheap device: who cares if it is obsolete or broken down in two years?"

Two years is so "yesterday". 14 months ago I paid $2,000 (not cheap) for a HP Pavilion desktop: i7, 1tb 7200rpm hard drive, 9 gb ram, upgraded nVidia graphics, 1394, etc. So I go to add a second hd and find I am limited to 3 Gb/s, as the motherboard will not support todays std. 6 Gb/s. Can't upgrade the mb without going full-out gutting the box. Coming off a $12,000 custom built workstation and a $6,500 BOXX mobile workstation, I wanted something less, but more than the std. consumer pc. I waited 2 years for a Lenovo x200-210-220t convertible tablet. But when I decided to go forward, the next-best thing was a few months away (Sandy Bridge, Windows 8, etc.). Cheap computers can't do serious computing and, today, $2,000 seems to be considered "disposable" by pc makers. Yes, $2,000 today gets me much more computing power, but with Autodesk and Adobe uping their software game, a two year old computer that over-performed when new struggles under new software requiremements. So, is there a market between a $500 consumer grade pc and a $2,000 pc capable for many power users? I say NO.

Mortarm
on Jan 17, 2013

> What we see here are two non-touch notebook PCs with an average selling price of under $460,

I only see one. The other is $549.

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