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The Economics of Scale Are Anything but Economical

Saturday, November 23, 2002

There is a pervasive, though ill founded, belief that computers from the major manufactures are somehow cheaper than those assembled by your local computer shop. We were recently taken aback when a customer told us that they wanted to buy a computer from us even though they were going to have to pay more. Though this isn't a completely unusual thing for a local business to hear, it is, nevertheless disturbing. So, once and for all, we'd like to debunk the myth that a computer purchased locally costs more than one purchased from a major manufacture.

For the purposes of this comparison, we are using Dell. There are a couple reasons for this. First, they are the largest of the major computer brands. Unlike some of their competitors, it is still possible to get a business class computer from Dell. Additionally, as a mail order company, people generally expect them to be cheaper than those computers sold from the national retail chains. Lastly, the information we were able to collect is available directly from Dell's Web site and is therefore readily available.

So, let's get right down to it, shall we? We went to Dell's site and built a "Small Business" "Desktop." To give them the best shot at being cheaper, we started with one of their low end series, the OptiPlex. Specifically, we chose the Dell OptiPlex GX260, which reads "from $499," a starting price far below ours. We then customized it to best match a computer you could walk in and buy today from Cape Cod Computer.

First, let me say that this wasn't as easy as the commercials suggest. Dell still insists on using the proprietary RDRAM for most of their systems rather than the industry standard DDR RAM. Why? We're not sure. RDRAM tends to be slower and more expensive. We can only assume they have a deal with Rambus (the guys who hold all the patents for RDRAM) that their lawyers haven't found a way out of yet.

Additionally, if you're not careful, you could end up with an Intel Celeron processor in your brand new Dell computer. We're glad to say we never sold one of those chips to a customer, even when some people argued that it what was a "good bargain." Regardless, nowadays, the price on uncrippled chips is so low that there is no justification for the performance hit a Celeron based computer takes.

After a bit of work, we were able to find a true Pentium 4 system with DDR RAM. We were also able to further customize that system to match a Cape Cod Computer system from this month's price sheet. Here's the specs, directly from Dell's site compared with the C3 Custom PC:

  Dell Dimension 4550 C3 Custom PC
Operating System Windows® XP Professional Version, Service Pack 1, with CD, using NTFS Windows® XP Professional Edition, Service Pack 1 with post Service Pack 1 fixes and updates. Includes CD.
  Dell, by virtue of it's close ties with Microsoft, can only offer Windows XP or Windows 2000. For comparison purposes, we have priced ours accordingly. However, if you have software that won't run on Microsoft's latest operating system or you just can't afford to relearn how to use a computer, you can get Windows Millennium or Windows 98 on your C3 Custom PC. That's one of the reasons we put "custom" in the name.
Processor and Motherboard Pentium® 4 Processor 2.40GHz, 533FSB, 512K Cache, Intel Gigabit NIC Pentium® 4 Processor at 2.40GHz with 533MHz system bus/ 512K L2 Cache
  Ours has the same specs, but we're using an ASUS motherboard. They neglected to mention a name. Dell has a gigabit network card built in. Ours is a separate 100Mb card. We would argue that a separate card is better as the integrated cards usually take up resources and conflict with a real network card should you need to upgrade or install a different card. In all honesty, for the average consumer, this is probably not an issue. For the computer repair person (you know, the poor sap who has to work on your computer) integrated anything can be a nightmare.
Memory 256MB DDR SDRAM at 333MHz 256MB DDR SDRAM at 333MHz
  Again, same specs. In this case, we are using Micron memory. Again, they don't mention a name.
Video Card 32MB ATI Radeon™ 7500 64 MB nVidia GeForce4 MX 420
  Besides having more memory and, in general, being a faster card, nVidia, by virtue of being the video card used in Microsoft's Xbox gaming console, has become the standard development platform for games. At least this time, however, Dell included a name.
Monitor Dell 17 inch M782 flat CRT color monitor (16.0 viewable) 17" (16" viewable) ViewSonic E70F .25 dot pitch perfect flat monitor
  They conveniently neglect to mention the dot pitch, which directly reflects how clear the picture is. Don't be confused by the name: Dell doesn't actually make their monitors. They rebrand monitors from other companies. We are then left to wonder whose monitor this is.
Hard Drive 80GB EIDE 7200RPM 80GB 7200RPM Western Digital Ultra ATA/100 w/ 8 Megs cache
  The key here is the 8 megs of cache, which make our drives as fast as those used in high end servers. Again, no name on the Dell.
CD ROM 40X Max CDRW TEAC 40x12x48 TEAC CDRW
  They don't list all the speeds (read, write and burn) for their drive, and of course, neglect to mention the manufacturer.
Sound Card Integrated Sound Blaster Compatible On-board 6-channel controller
  "Sound Blaster Compatible" means it's not a Sound Blaster. So, these are probably the same for all intents and purposes.
Speakers Harman Kardon 206 Speakers Cyber Acoustics 10 Watt Pedestal Stereo Speakers with Power Supply
  This time, they have provided a name but left out the specs. Fortunately, with a little research, I was able to find out that the Harman Kardons are only 6 watt speakers.
Keyboard Dell® Quietkey® Keyboard Mitsumi 104-Win95 Enhanced Keyboard.
  The difference here is personal preference. I've used the keyboards Dell ships on severs and they are really nice. However, that's certainly not what you get with the OptiPlex. In all honesty, I don't love the Mitsumi keyboards either for feel, but they never go bad. There's something to be said for that.
Mouse and Pad Microsoft PS/2 2-Button IntelliMouse with Scroll Microsoft USB 2-Button IntelliMouse with Wheel
  This is virtually the same mouse. However, we were amused to find that Dell charges extra for the mouse pad.
Anti-Virus Norton Antivirus 2002 Norton Antivirus 2002 with 1 year subscription
  They didn't list the subscription, but based on what they are charging for it ($40), we have to assume it's also one year.
Surge Suppression Belkin Components Surgemaster Gold 9 outlet w/10ft cord Cyber Power 890 with power, telephone, network, satellite and cable connectors
  Theirs only protects the power and phone lines. However, as we all know, a surge can follow any line. It can follow your cable or satellite connection into your home. So, you need to protect these as well. Our Cyber Power does this.
Warranty 3 Year Same Day 4Hr Parts Onsite (M-F 8am-6pm) + GTS 1 Year in store.
  At first glance, the Dell warranty seems great. However, as anyone who has ever tried to cash in on this warranty knows, there is clause with the phrase "user serviceable part." What that means is that they won't send a technician onsite if they feel the user can fix the computer themselves. Dell claims even the motherboard (the piece of hardware which connects every other piece of hardware) is "user serviceable." We, on the other hand, handle all repairs to your computer. We even loan out monitors to customers if they have one go bad. As a result, Dell simply can't compete with us on the warranty, no matter how they phrase it.
System Price $1,769.25 $1339.00
With Installation $1,919.24 $1389.00

On top of the price of the Dell, you would normally tack on shipping. Dell was running a sale when we built our system, however, so we only paid shipping on the surge suppressor. The price of the Dell may go up by as much as a couple hundred dollars at the end of the sale. Shipping costs are already built into our numbers. Both systems would be subject to sales tax.

Unlike some of their other bargains, free shipping is a good deal. We saw other systems that offered free printers, scanners, digital cameras, Internet access, etc. As we noted in an earlier article, free printers are anything but free, and these deals are anything but good. The same goes with free, bundled software. In most cases, the software bundled with a system is crippled software, either lacking features or timing out. Dell bundles these products with your computer because they get paid to, not because these are products Dell's customers actually want.

In all fairness, if we weren't trying to so closely match the computer that is on our price sheets this month, we probably could have configured a Dell computer cheaper than $1,769.25. In other words, we chose the best video card Dell offered because even their best was not as good as our standard card. Had we been buying this system for ourselves, given the limited options, we would have probably chosen the video card which offered the best price to performance ratio.

Nevertheless, the Dell OptiPlex configuration above is the closest match and therefore provides the best comparison. In the end, we found it lacking in almost every category. Despite this, and despite the limited time offer for free shipping, the Dell was still much more expensive than the C3 Custom PC. So much for the economics of scale.


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