Wal-Mart counters PC trend with $999 unit - microcomputers

Discount Store News, June 3, 1996 by Pete Hisey

BENTONVILLE, ARK. -- Roughly 35% of American households now contain up-to-date computers. Which means that two-thirds don't.

For the most part, these holdouts are the middle-to-lower segment of American households. More affluent consumers, particularly those with school-age children, were quick to adopt the PC.

Aiming for that large non-PC market, Wal-Mart recently added chainwide sub-$1,000 computers from AST meant to appeal to lower-income consumers who don't have $3,000 to get the latest technology, but who still want their kids to have a fighting chance in a school system that is more and more based around the PC.

To get to that price point, AST and Wal-Mart had to sacrifice something, and the victims were processor speed and RAM, two of the most important variables in running state-of-the-art software. On the other hand, the units come preloaded with Windows 95, support a 4X CD-ROM drive and contain a relatively robust 540-megabyte hard drive. And with 8 megabytes of RAM, the machines won't exactly be the slowest dogs on the market.

Wal-Mart is taking something of a risk with this program. Consumers have repeatedly said-to the point that it has become an industry given-that they want the latest technology and as much power as they can afford. In July, the standard issue PC, at about $2,500 or less, will feature a Pentium 200 processor, more than a gigabyte of memory in the hard drive, 16 megabytes of RAM, at least 1 megabytes of video RAM, a 28.8 bps modem and dozens of other features.

Wal-Mart's new venture will determine whether the accepted wisdom in the computer industry, that the consumer wants as much power possible, is wrong.

According to a recent survey conducted by Odyssey and published in USA Today in mid-May, "latest technology" finished a distant fourth when computer owners were asked what elements were the most important in deciding which computer to buy. "Value for the money," at 78%, followed by "can run software [I] want" at 75% were the two most important variables. "Ease of use," at 69%, was a close third, but "latest technology," at 51%, wasn't even in the same ballpark.

And these responses came from regular computer users who are presumably the most affluent, technology-friendly elements of the population. If these users are willing to give up performance for savings, lower-income, less technologically advanced consumers could become a whole new PC niche market.

This is not the first time that Wal-Mart has looked at this price point. At selected stores around the country, like one in Moore, Okla., the chain has marketed at least one and sometimes three skus of older technology computers, low-powered models based on early Intel 486 chips. At the Moore opening, and later at City of Industry, Calif., the local population included large numbers of mainly lower-income consumers who seemed to react very favorably to the $999 computers.

The Wal-Mart news comes on the heels of announcements by two manufacturers that they plan to introduce extremely stripped-down computing devices, priced at $500 to $700, meant to be plugged into a television set and used primarily for surfing the Internet and playing entertainment and educational CD-ROM software.

These machines, little more than a modem, 16 megabytes of RAM and a CD-ROM drive, might move into the niche Wal-Mart and AST are trying to address. However, at that end of the market, access to the Internet might be far less important than giving kids educational software, a good word processing system and a place to print out homework.

Intel president Andy Grove, asked recently when he foresaw the creation of a universal standard in computing, replied, "Never." He noted that new capabilities like full-motion video and computer telephony over the Internet will build demand for ever more powerful machines.

However, several retailers reported that that question is central to their planning in the computer market. Without a standard, be it DX-66 or Pentium 200, the PC will never truly become a mass merchant staple. The frustration, the number of returns and the relatively small installed base will always work against the category.

A low-cost PC with adequate software support could quickly expand the market by 20 million or 30 million consumers. And that may ultimately force some rethinking on the part of software manufacturers, which provide products only for the upper end of the market.