Home market is not easy PC

None of the PC manufacturers make money selling PCs through retailto consumers, so the vendors are galloping upmarket where there is stillprofit, says Andrew Charlesworth.

The arrival of Compaq's new Presario home PCs is another step in the process of consumerising the PC.

The machine which dominates so much of business life has taken much longer than was predicted to be accepted in the home. Back in 1990, some pundits were predicting that more than half the homes in the US and Europe would have a PC by now. But then someone predicted that the Apple Newton would be the birth of a trillion-dollar mother-of-all-markets for personal digital assistants.

There has been no shortage of hype about the benefits of owning a PC at home. But the technology has remained complicated, the marketing message diffused and the price too high for mass-market acceptance.

A few PC makers are beginning to do something about the technology. Whereas once the home PC was an out-sized grey plastic shoebox just like the one made for work, now it comes with friendly rounded corners, in less industrial colours and is borrowing heavily from other consumer electronics devices. For example, Olivetti's colour-coded connectors for the Xana and Compaq's inclusion of a volume control knob on the front panel of the Presario to replace the software control buried deep in an application are steps in the right direction.

And the marketing message is beginning to be refined too. The market is such now that Compaq feels ready to segment its consumer PCs so that they can be more closely targeted at specific customer groups. The one-size-fits-all era of home computers is ending.

There are Presarios for the family, for gamers and for yuppies (the "design-conscious" in Compaq's lexicon). But there are no Presarios for the poor.

Prices for the base machine start at u1,499 for an ordinary PC with 8Mb of RAM and none of the 3D audio and graphics acceleration gizmos which make the other models attractive. The price of the gamer's machine could buy a foreign holiday for a family of four. The yuppie's machine could be used as deposit on a house somewhere quiet and unfashionable. If your customers don't have budgets of at least u2,000, you'd be doing them a favour by steering them towards another brand.

Why are Presarios so expensive? Quite simply because Compaq has learned that there is no profit in making PCs for less.

When the business market showed signs of slowing in 1990, all the computer makers wondered what they were going to do to keep their double-figure growth rates which had made their shareholders so happy. Just where were they going to sell their computers? The home market provided the answer.

PCs had already begun to creep into US homes, almost without the PC makers noticing, so why not formalise this trend into a deliberate sales strategy?

Seeing the growth in home PCs, market analysts made optimistic predictions about the future of the home market and, based on these predictions, PC makers began to buy market share at retail, pushing their brand names through the national media in the belief that pay-off day was not far away.

But pay-off day has not dawned yet. None of the PC makers make money selling PCs through retail to consumers. They say they do, but they are relying on hiding huge costs under the economies of scale created by their profitable business sales. Even the most successful will admit privately that if their consumer divisions had to stand alone they would not be very attractive to investors.

You can buy a decent PC now for u800, but there is no profit in it for the PC manufacturer and it is still too expensive for the mass-market consumer. Recent reports show that only 20% of European households have sufficient disposable income to afford a PC.

So rather than try to push down the PC to a price that might be affordable for a few more households, Compaq is pushing the price up and appealing to the few who can afford it. "Although we won't do lots of volume, there will always be a market there - and a profit," says Hamish Haynes, marketing manager for Compaq's consumer division.

Apricot and Hewlett Packard are following a similar course. For these companies, the ideal of the mass-market PC has given way to the reality of profitability.

This trend is reflected on the shelves of computer retailers, at least in the UK, if not elsewhere in Europe yet.

Look at the Context figures on page 2 of CRN 19 August. The price bands which have most increased their share of retail shelfspace are u1,750- u1,900 and u2,200-u3,000. How long is it going to be before they overhaul the favourite u1,500 - u1,600 band?

For the foreseeable future PCs are for the rich.

The mass-market idealists will have to come up with some new ideas or face extinction.