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Bundled Software With New PCs

One of the biggest benefits associated with buying a pre-packaged retail PC or a mail-order machine manufactured by a big company, is that you will usually get a software bundle included with the system. Given the tremendous cost of some application software, the value of this bundle should be carefully considered in any system purchase decision. (In fact, I would go far as to say that the lack of included software is the single biggest disadvantage associated with buying a build-to-order PC from a small local shop. It's also one reason why I might recommend against a homebuilt PC for someone who is starting out with no software.)

How is it that some large PC companies can include bundles of expensive software while remaining competitive with smaller companies that don't? Well, they do pay for the right to include the software, and their machines have that cost included in them. That's one reason why these machines usually cost a bit more, though that "bit" is a small fraction of the retail price of the software. The real issue here is volume, and the intangible nature of software.

If a big PC maker approaches a hardware company and offers to buy 10,000,000 units of a product, they will certainly get a nice price discount. However, there's only so far the component manufacturer can go, because they are building a tangible product. It itself has components, manufacturing costs, overhead and labor, and these are expenses that must be covered for each unit. Software is different. It certainly costs a great deal to develop it, and some amount to support it, but the cost to make each specific software CD is miniscule. Furthermore, that cost is usually limited to the packaging associated with the product.

If a big PC maker approaches a software company and says they want to buy 10,000,000 licenses for a software product, the software company will give them a very steep discount, because they have virtually no variable (per-unit) costs to cover. They don't even have to make the packaging! Also, they usually contract with the PC company so the software company isn't responsible for support on those units. This reduces the software company's costs for those licenses to a very small number. So even if a program sells for $400 in the store, they might license it to the PC maker for 10% of that cost, and still make a very nice profit. (And in some cases the software maker is willing to give up even more profit in order to get the market share associated with having their product on every one of a big PC maker's new machines.) Of course, your local PC shop doesn't have that sort of buying power, so they can't make similar deals, and that's why the discrepancy exists.

Software bundles vary greatly from one manufacturer to the next, and even between models made by the same company. For example, a PC package targeted towards high-school students would typically come with more educational software, reference resources and games, while a PC marketed towards businesses would be more likely to contain financial and business applications. The applications that are most commonly found in software bundles are:

• An operating system, usually one of the current Microsoft operating systems such as Windows 2000 or Windows ME;
• An office suite, such as Microsoft Office (but sometimes only one component may be included, such as the word processor);
• An anti-virus package.
• An electronic encyclopedia.

The value of a software bundle is entirely in the eye of the beholder. If you've already got all the software you need, then getting more software isn't going to help you much--don't let the system maker excite you about things you don't need. If you are starting from scratch, however, then you do need the operating system and anti-virus software at the very least. If you also need an office suite, then you could be looking at over $500 just for the software to buy it after the sale. Clearly this will significantly impact your purchase decision, especially if you are talking about a $1000 PC.

Tip: If you already have software that is bundled with a PC you like, you may be able to get the company to give you a credit back on that software, reducing the cost of the system. However, here the fact that these companies pay so little for the software works against you: since the PC maker isn't paying much for the software to begin with, they will give you at best a very small credit if you don't want the software. Many will give you nothing at all.

A final issue related to bundled software is what exactly is included with the PC. Sometimes companies install the bundled software but don't include the source disks. Be sure to ask, because if you ever need to reinstall the software in the future, you will have trouble without the source disks. See here for more.

Next: Understanding PC Sources, Vendors and Prices

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