Posts Tagged ‘Computer Hardware’

The High Cost of Discounted Goods

Wednesday, February 11th, 2009
Bright and Shiny, But Not Necessarily Inexpensive

Bright and Shiny, But Not Necessarily Inexpensive

In Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition, 2008), I advise readers that it is always best to purchase the current versions of computer hardware for their small businesses. Rarely is it cost-effective to purchase an earlier model of hardware for the reduction in price. Recent discount offerings by major retailers, such as Circuit City, have prompted readers to ask me if I would like to revise my original advice. After all, with major retailers discounting their inventory by 80% in bankruptcy sales, doesn’t this represent a great opportunity for small businesses to save some money on their purchases? The answer is: no, not necessarily. Consider the purchase of a computer printer. The printer’s functionality is dependent of the hardware (the printer itself) and the software (the printer driver which delivers instructions from your computer to the printer). Whenever the computer operating system is upgraded, the manufacturer of the printer must write software for the new printer driver, which they typically make available for free download. Now you see the competing needs of two different business models.

The manufacturers of computer operating systems generate revenues from software licensing fees, which are like an annuity stream. But the hardware manufacturers only earn revenue at the point of sale: when you purchase their printer. If they have to keep writing and distributing new printer driver software every time the operating system is upgraded, they incur open-ended and unlimited costs. They could invest substantial amounts of resources in supporting obsolete hardware to keep up with software upgrades. That is why hardware manufacturers limit their support to a fixed period of time, typically a year or two. So that discounted printer model you purchase at the online auction or the bargain basement may appear inexpensive. But then you attempt to set it up and find that you don’t have a current printer driver to make it work optimally with your computer system. Then the cheap printer becomes an incredibly expensive paperweight. So I am sticking with my original position: it is generally best for small businesses to invest in the current models of computer hardware, irrespective of retailer discounting.