Thursday, April 15, 2010

A bit of a byte

Being a not so cleverly veiled discussion of the economics of technology.

In 1999 I bought my first computer. I bought way more machine than I needed, assuming it would be worthwile to spend extra so that it would not need to be replaced as quickly. It was a 90's beige box Dell, and I spent the ludicrous sum of $1500 on it [1].

And last it did, until 2004/2005 when it finally began to get cranky and show its age. It got to the point where it couldn't provide the functionality I needed, so it was time for an upgrade. I shopped around for pre-built computers, but couldn't find what I wanted at a good price point[2].

So, I marshaled the fantastic resources of the internet and delved into the realm of the "PC enthusiast". [3] With the help of some really informative sites, I was able to put myself together a sweet little machine for under $500, (which at the time, was pretty good) by assembling it myself. While there are drawbacks to the massive overload of the information revolution, being able to get great advice from a wide range of people in any given field is not one of them. (see recommended sites following this post) While I did not quite go off the cliff into the case/system pimping of the true enthusiast (I saw multi-colored, neon glowing, water-cooled cases that would have made Xzibit weep with joy), if you're going to DIY, might as well have fun. So I ended up with a nice shiny black case and red, lighted exhaust fans that give the subtle impression of an obsidian megalith spewing hellfire. [4]

The DIY approach is always satisfying, and even in this incredibly geeky pursuit, it was fun to learn more about the PC, and actually assemble one by hand.

Now here's where the economic blathering kicks in...

At about the same time, my wife bought a new Dell for about twice the price of my system, with about the same specifications (slightly better). It was more machine than she needed, but she was operating under the same assumption we all generally do...invest in quality and get more than you need, and you can grow into it. It is my argument here that, while this may be perfectly logical in many durable goods, it does not work with computer purchases (and other related technology).

My bet with her [5] was that by buying what I needed, rather than buying something better than I needed, and then planning to upgrade earlier than she did, I could spend less than she did, and end up with a better computer.

The assumption was that we would start roughly equal, or I would have an inferior system. I would then pursue an aggressive upgrade schedule of 3 years, while she would keep her system for 6 years. Because the rate of tech change is rapid, after the 3 years, I would be able to spend only an incremental amount to upgrade my components to a system that would be generations beyond hers. The difference being that she was paying for having more capacity than she needed on the front end, whereas my system scaled to meet my actual need. Taking advantage of advancing tech, but staying in the moderate end of the market, I would end up with a much better system at the same or less cost. This would not work for durable goods like furniture, but does for tech, because it's not static. A good chair is a good chair. What's a good processor now, will be obsolete in the very near future. [6]

To put it into context, we skip ahead to 2010. I had planned to upgrade sooner, but simply hadn't needed to. [7] However, given an occasional game, and a more frequent need for multi-core processing ability to do photo editing and other more processor/memory intensive tasks, my old system was starting to drag a little. Since I could afford to upgrade, and could afford to do so cheaply, I went ahead with it.

So now I am on the cusp of finishing a new system [8] that is pulled from the moderate range of the market, like the last build. It meets my need for now and the foreseeable future, but doesn't invest too much into the high end or trying to meet my need indefinitely. I spent about $350 in total, by working deals like it was my job. I filled out a rebate for practically every component I bought.

To illustrate the economics point, though, let's look at my system vs. my wife's

Original Systems (2005, start of experiment):
My Wife's - Dell, original cost ~$1100. PIV processor, 512 m RAM, Radeon 7000 video - cost, $1100 (pre-built)
Mine- roughly equivalent, better video, better processor, no service contract, win 2k vs. XP. - cost ~$550.

Current Systems(2010)
My Wife's - same as original, no upgrade.
Mine -upgrade components current gen, with high function video card, quad core processor, etc. - upgrade cost - $350.

Total Cost, Original + Current:
My Wife: ~$1100
Me: $550 + $350 = $900.

So even if you subtract out of my wife's costs the repair contract and her flat screen monitor, we still spent about an equal amount of money over this 5 year period.

HOWEVER, because I started moderate and then upgraded moderate DIY, and she started premium, pre-built, I came out far ahead because:

1) the best tech price point is at the 50-75% percentile range of capacity
2) technology has a steep price decline that negates any value of "growing into" a system.
3) by doing the DIY approach, I didn't need to get a whole new computer, just new "guts". This saved money and meant less electronics waste.

The somewhat dubiously proven lesson here is that if you can DIY, do so. But more importantly, don't "invest" in more of a system than you need. These days, you can almost always get the best deal in the middle to bottom third of the market because capacity has outstripped need, and tech changes so rapidly.

For anyone interested in building your own( it's easy..everything is modular! No wiring/soldering, just plug a into b), I highly recommend the following sites:

) - all around great forums and advice for tech of all kinds
2) - fantastic site of user submitted deals and finds for all things, but especially tech. I don't buy anything until I've checked here first.
3) - great place to get components. Fantastic service, cheap, and great selection.
4) - if you're lucky to have either store nearby, they have ridiculous combo deals all the time. One-stop shop.
5) - free office software clone. Open source, can easily save as office document formats. Free. 100% legal. - in general you don't need to buy any software except your OS. Everything has a freeware clone version these days.

[1]~$1500, back in those days, was the equivelent of like, $40,000 now, or something. Also, we walked uphill both ways to school. While that was not too crazy a price in that day (when computers weren't as cheap as they are now), it was still ludicrous for someone making ~$25,000 a year to spend more than 5% of their income on it.

[2] Some people have called me cheap. I tend to take that in the pejorative sense. I am value-oriented. I am cost-conscious. I like a deal. But not cheap. I have absolutely no problem spending money for quality. My primary philosophy is 1) figure out what you need (and at what point you run into diminsihing returns), 2) find the best match between price and value that meets that need.

I don't pay for the status of having a brand name. I don't pay for the novelty of having the latest thing. Neither do I try to find the absolute cheapest thing I can get. In pretty much all things you pay a premium at either the high or low end of the market, either to have the latest thing, or just to have a thing at all (respectively).

[3]It is a dark and damp realm, smelling vaguely of body odor and despair and parents' basements.

[4] Or, conversely, the impression of having way too much time on my hands.

[5] This was not a bet in the sense that she took me up on it, simply in the sense that I blathered this to her and she nodded and smiled and patted me on the head and went about her business.

[6] At the time I was doing a lot of work with long range water supply planning, which often deals with the balancing of two factors: 1) the desire to not have unused capacity on the ground, costing money but not doing anything, and 2) the desire to upsize capacity such that when you need to upgrade you don't need to retrofit everything. To me, the computer issue was a micro level examination of the same conundrum. How do you find the best value over time to meet a need, without paying a premium for unused capacity? Even more so, how do you do so with a product that isn't static (i.e. a pipe is a pipe. the tech is not changing rapidly, as opposed to , say, a video card.)

[7] the fantastic thing about the modern computer era is that even the lowest capacity computer on the market is way more machine than 90% of us need. Unless one does 1) hardcore 3d gaming, 2) lots of intensive video/photo editing (pro-level) or 3)runs high caliber aps like GIS, CAD, etc, you simply don't need a quad-core processor with 4 gigs of RAM. The only thing that has really scaled over the past five years is our need for storage space. But with 1 terrabyte drives as cheap as $70, that hardly dictates the need for a new machine.

[8] For the techies, Athlon II X4 630 with an MSI 785 GM -E51 motherboard, 4 gig ddr31600 RAM, a nice 512m Radeon 4850 video card, 1 TB Samsung F3 SATA drive, 160 gig hitachi drive, 640 gig external hitachi backup drive, Sony Opticar 22X DVDRW, and a new 500 watt PSU, paired with my existing Antec case and optical drive. All for around $350 for the new components (everything but the case, one optical drive, and the 160 gig and 640 gig hd's).

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