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Roger Bohn, University of California at San Diego
Appeared in Data Storage
January, 2000; Volume 7; Issue 1
| Smart decisions concerning the choice of controller interface, drive rotational speed, and drive-access time all have better price/performance payoffs for end users than buying the latest microprocessor. Getting consumers to ask for these features would create a demand for higher performance that would shift incremental spending on PCs toward mass storage. |
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The personal-computer market continues to mature and as it does, many in the industry look longingly to the "Intel Inside" campaign. With this ad campaign, Intel shifted an invisible infrastructure component into a consumer brand name. The cost of this transformation was not cheap-some $700 million. Nonetheless, that blitz was so successful that Intel budgeted $300 million through a single ad agency for the rollout of the Pentium III microprocessor.
Most other computer-component companies continue to think of themselves as making industrial products with no brand-name recognition or product differentiation in consumers' eyes. Most have trouble letting go of the assumption that consumers are both well informed and motivated in ways that are rational to them.
The problem is that the companies are thinking like scientists and engineers. They fully realize that for the vast majority of users and applications, real performance differences among the various Intel microprocessors are now almost indistinguishable. This is the dirty little secret of the PC industry.
Consistent studies of computer usage over many platforms and applications show that speed improvements of less than 20% are invisible to most users, while improvements below 10% are invisible even to experts. Notice that the measure is in percentages, not in absolutes like megahertz or seconds, since human sensory perception is logarithmic.
Thus the difference between a 600-MHz Pentium III and a 550-MHz Pentium III is invisible to most of us. Furthermore, most applications are constrained now by the speed of other elements, especially HDDs, memory, networks, and the video card for those all-important games. For these applications, there will be no objective differences between processors. Yet Intel always prices its current high-speed processor at a substantial premium.
Why are consumers ready to pony up an extra $200 for something imperceptible? For half that figure they could get much more significant speed improvement by buying a faster HDD (7,200 rpm vs. 5,400 rpm) or installing another 64 MB of main memory. The reason is simple: Consumers care about prestige, image, and distinguishing themselves from others. Apple's Steve Jobs has known this for a long time.
Before struggling high-tech executives can capitalize on what Intel and Apple have done, they must first stop thinking as engineers and start thinking as "marketeers." Rather than sneer at product differentiation, they need to understand that such seemingly irrelevant differentiation is common in a lot of consumer mass markets.
Intel's advertising encourages the misconception that small MHz differences matter. People view these things as arithmetic changes rather than logarithmic. Most people will say, "I got the machine that's 50 MHz faster," rather than "I got the machine that's 9% faster." By differentially pricing small speedups at the top end, Intel is essentially price-discriminating to extract the maximum producer surplus. The losers are the uninformed and the testosterone-inclined buyers, who obtain the latest machine for prestige.
It's now time for others to follow Apple and Intel. For hard-disk drives, there might be an opportunity for some collective action. Of course, company differentiation must be done individually, but increased awareness of product features could be an industry-wide project.
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