Why PCs aren't pricey anymore

Oh, you can still buy a computer direct--either by making a 1-800 telephone call or by logging onto a corporate Web site. But that's a world away from what I'm talking about.

It wasn't long ago that you could choose among scores of PC mail-order outfits making first-rate machines every bit as good as those offered by the IBMs and Compaqs of the world. And then there was Dell Computer and Gateway, two direct resellers in a class by themselves. Publicly traded companies with billions of dollars in annual sales--and billionaire CEOs to boot--they were lauded in countless business magazine cover pieces extolling the latest turn in old-fashioned American entrepreneurship.

Say goodbye to all that.

After its most recent annus horribilis, Dell increasingly sees its future in retail.

Gateway, which stumbled its way into irrelevance for much of the last decade, now operates as an arm of Acer. As for the rest of that once-plucky cohort of no-name direct sellers, most are insignificant, at best, or fly-by-night operations at worst.

Maybe all of this was foreordained. After all, how many multibillion-dollar industries can you find where mail order trumps retail distribution by a wide margin? But for a brief period, the mail-order crowd was to give the mainstream one helluva run for the money.

Like the tech enthusiasts and computer clubs that formed at the dawn of the personal computer era, that first crop of entrepreneurs was a unique bunch. A few accumulated fortunes. Some sold out before the good times ended. Many--maybe most?--ultimately went bust. But before they left the scene, direct-sales specialists like Gateway's Ted Waitt, Art Lazere at Northgate, Greg Herrick at Zeos, and of course Michael Dell, who's still at the helm of his eponymous company, were responsible for forcing computer makers to make machines that regular folks could afford.

If you recall, that wasn't always the case. In the mid-1980s a fully loaded PC XT or PC AT sold by IBM or clone makers like Compaq or AST Research cost several thousand dollars, depending upon the configuration. Those fat profit margins helped pay for a cumbersome distribution system that relied upon computer retailers.

Some computer resellers were very good at their craft. Companies like Businessland, Entre, and Inacomp went public and for a time did quite nicely. For the most part, however, the computer stores were fat and happy order takers. They got away charging big premiums because PCs were still a novelty for most people. If you wanted to buy a computer, what alternative did you have other than to build your own?

The mail-order guys exploited that opening for all it was worth. At first, their rising popularity was mostly related to the lower prices they charged. In time, though, they became masters of improvisation and would learn how to beat the old-line computer companies in the new-features competition. At one point, Big Blue fell so far behind the mail-order makers that it panicked and started a separate direct-sales company based in Raleigh, N.C.

But you can stay dumb for only so long.

In time, the rest of the industry figured out how to squeeze inefficiencies out of their distribution systems and became far more nimble. The emergence of the Internet was the game changer. Big computer companies that previously avoided channel conflict like the plague seized upon the new technology. Relying exclusively on retailers no longer made sense. The new mantra: let the customer decide where to buy the product.

The dominoes fell quickly. Direct vendors lost their advantage as every computer maker worth its salt now also was a direct vendor. The PC was always a commodity--only dressed up as something more than that. Now there is no returning to the days of Fat City. These days you have no excuse for getting ripped off. If you pay too much for a computer, it's your own fault.

Remember that next time you go shopping for a new PC. And while you're at it, how about a holiday note of thanks for the entrepreneurs who helped make it happen.