In the 90s, the best laptops came with 4MB memory and 720MB storage.
Their average price?
These days, laptops now have specs that are over 1000 times better.
And many sell for less than $500.
So how is that even possible?
Well, allow me to explain.
Keep reading to find out:
- What Moore’s Law is and how it affects the prices of gadgets.
- 13 real reasons why tech is getting cheaper (#2 may surprise you).
- Specific examples to show just how much tech has become cheaper over the years.
- And a lot more…
Why is tech getting cheaper? 13 real reasons
#1: Moore’s Law
It’s not really a “law” per se, but more of an observation by Gordon Moore.
He was the former CEO of Intel. He was also a co-founder of Fairchild Semiconductor.
In 1965, he predicted that the number of transistors per microchip will double every 2 years.
And for the next few decades, his remark proved to be correct. Thus, what he said became known as Moore’s Law.
Now, in much simpler terms…
It means that the processing power of computers will increase every few years. And that has been the case from the 1960s up to the present day.
Let me give you an example as proof of that.
In 1961, the IBM 7030 supercomputer was able to perform 1.2 million operations per second.
Fast forward to 2020. And the A14 processor by Apple can do 11 trillion every second. That’s about a million times more than the 7030.
“Cool. But how does that affect the price of gadgets?”
Well, since microchips, tiny parts used for creating gadgets, are more powerful now…
It doesn’t require as many components to build a gadget. And that helps drive down the production cost.
Whereas it took over $7,000,000 to build the IBM 7030 back then…
It won’t cost much to create a computer with similar specs today.
Now, if you’d like a more in-depth explanation of Moore’s Law…
Check out this infographics video below:
#2: Price skimming
Some people also refer to this as skim pricing.
But what exactly is it?
Well, it’s a pricing strategy. This is when firms sell their products at the highest possible cost upon initial release.
But as the consumer demand decreases…
These firms will also start bringing down the price.
A DVD player is a good example of this.
When it was released in the market during the late 90s…
The demand from consumers was sky-high. That’s why manufacturers were able to charge over $1000 for each unit.
But with the rise of smart TVs and streaming services like Netflix…
Public interest in DVD players dropped significantly. And that’s why they now sell for under $40.
Another example is Apple products.
Let’s take the iPhone 11 for instance. When it was released in 2019, the cheapest variant cost $700.
But with newer models coming out…
The interest from the buying public in iPhone 11 also naturally decreased. And so, you can buy a brand new 1 now for less than $500.
These are just a couple of examples. But the effects of price skimming happen in most, if not all, tech products. Hence, the cheaper prices that we see today.
There are several tactics that companies use to gain market share. But perhaps the most common 1 is to simply sell at a lower price than their rivals.
And with more firms adopting this strategy…
The result is a competition on who can sell the lowest. Now, that’s a win for the consumers.
And it’s another factor that helps drive down the price of electronic goods.
I’ll use robot vacuums as an example this time.
When iRobot released the Roomba in the early 2000s…
It was a massive success. So much so that the brand became synonymous with robot vacuums.
But this inspired many Roomba knockoffs. Those who also wanted a share in the robot vacuum market.
And knowing that it’d be hard to compete head-to-head with iRobot…
Many firms decided to sell their products at a much lower price. They knew it was a good way to sway people to buy non-Roomba vacuums.
As a result…
There are now plenty of robot vacuums that sell for under $100. That’s less than half the price of the cheapest Roomba.
This is actually connected to the previous entry.
1 consequence of competition in the market is an oversupply of products.
And as economics 101 goes…
If the supply is greater than the demand, the price of commodities goes down.
This is because firms would rather sell at break-even or at a loss than not make money at all.
Let’s take flat-screen TVs as examples.
In the early 2000s, bulky CRT-TVs were still popular.
And there weren’t a lot of flat-screen sets. That’s why this TV type costs thousands of dollars each. In fact, 50-inch versions were selling for around $2000.
However, by the late 2000s, more manufacturers started producing them.
And in 2011, New York Times even wrote an article about the oversupply problem of TVs.
That issue is still happening to this day as more firms enter the industry. And it’s why you can buy a 50-inch flat-screen TV now for about $400.
With the advancements in technology…
Many tasks in manufacturing can now be automated. And this, in turn, helps lower the overall production cost of electronic goods.
Well, for one, robots are much more efficient. They can produce more per hour than we can.
In addition, automation also eliminates human errors. So the resources in production don’t go to waste.
Furthermore, it allows companies to reduce the size of their workforce. Fewer people on the payroll mean less expense.
#6: Supply chain efficiency
This refers to a company’s ability to take advantage of available resources in the best way possible.
Basically, it’s about producing goods at the lowest possible cost. All while still maintaining quality.
And manufacturing companies are now better in this aspect compared to decades ago.
This is mainly due to the technological innovations that we now have.
Now, I already mentioned automation. And it’s 1 way companies have vastly improved their efficiency.
But in addition to that…
There is now advanced software available to better keep track of inventories.
And the internet has also allowed companies to outsource parts of their operations.
In other words, companies are more efficient in manufacturing now thanks to technology. In turn, it helps them lower their production cost.
And that makes it possible for firms to reduce the price of their products…
While still being profitable.
#7: Lesser focus on research and development
Here’s an exercise.
Try to name at least 5 gadgets that you use that were only invented in the 2010s.
If you’re struggling to come up with something…
Don’t worry. I couldn’t name 5 either without searching on Google.
Smartphones, laptops, LED TVs…
Those have been around for over a decade.
The point here is, tech firms these days focus less on research and development. And more on improving already existing products.
And that’s another reason why tech is getting cheaper. It costs less to add or remove features than it is to invent something from scratch.
In simple terms, it means obtaining goods or services from a foreign supplier. And this practice has also helped many companies reduce their operating cost.
As some of you may know…
China has become a favorite outsourcing destination of various tech companies.
This is because of the much lower labor and operating cost there.
And as I mentioned, when companies are able to bring down their expenses…
It also allows them to sell their products cheaply.
#9: Modern gadgets require fewer parts to make
I’m sure many have already noticed this. But as the years or decades go by, electronic devices generally get smaller.
Take a TV, for instance.
Remember those huge CRT sets from the past?
Those TVs weigh a lot. Some are even 200 lbs (99 lbs) heavy.
Modern TVs, on the other hand, are much lighter. Even a 40-inch variant only weighs less than 40 lbs. (9 kg).
And the trend is similar with computers.
Those models from the 1960s were massive and took up an entire room. Today, you can carry laptops with 1 hand.
My point is, modern devices contain much fewer components than older ones. And it’s yet another reason why they’re cheaper and easier to manufacture.
#10: Mass production allows firms to lower their profit margin
I already mentioned how efficient manufacturers are in modern times.
Most companies are able to produce goods in much larger quantities than in the past.
This is also why some are able to sell electronic devices at an affordable cost.
They know that the demand for their products is already there.
And as long as they sell a good volume of products even at a cheap price…
They’d still be able to make money.
#11: The emergence of Chinese tech companies
In recent years, many Chinese firms have emerged to dominate the tech industry. These include:
And they’re a big reason why tech overall has become more affordable.
As I mentioned, production cost in China is much cheaper compared to the US and countries.
It’s why these Chinese firms can sell phones, TVs, or robot vacuums at a really low cost.
#12: Some countries offer tax incentives for tech companies
Another reason why tech companies have been able to lower their price is due to tax breaks.
In China, electronics firms only pay a 15% corporate tax. To compare, other businesses pay 25%.
Meanwhile, in the US, tech firms can receive tax credits for some of the amounts they spend on innovations.
In particular, they can deduct up to 25% of their research and development budget from the tax that they owe.
These incentives also contribute to the reduction of operating costs for tech companies. And it helps them stay profitable even in selling goods at lower prices.
#13: Online comparison shopping
The rise of virtual stores is another factor that has driven tech firms to lower the price of their goods.
These days, you’re no longer limited to what’s available in your local store.
It’s easy to go online and compare the price of goods from various brands.
This essentially compels electronics firms to keep their prices in check…
Knowing that buyers can simply look elsewhere if they overprice their products.