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Industry Rethinks Moneymaking Software Practice
source: New York Times


Tim Boyle/Getty Images Eric Fortuna, right, at a Best Buy in Illinois. For $30, his Geek Squad will eliminate programs installed by computer makers.

Mr. Fassler estimates Best Buy will have sales of $44 billion this year. Of that, $1.5 billion to $2 billion will be from the sale of H. P. computers, analysts estimated.

One important question is whether the new model being developed by H. P. will be as profitable as the current one. Mr. DeWitt said he expected it to be more profitable. But A. M. Sacconaghi Jr., an industry analyst at Sanford C. Bernstein & Company, said the change could imperil H. P.'s profitability, in part because there is no guarantee that consumers will buy software offered through H. P. instead of another site.

As software buying moves online, Mr. Sacconaghi asked, "what makes a consumer go to HP.com over Google?" He also says the challenge for personal computer makers is that they are losing control of what shows up on PC screens -- a form of real estate that they have used to sell billboard advertising for software.

"They no longer have that real estate advantage," he said. "There's a substantial profit pool at risk."

And there can be little profit to begin with, analysts said.

The profit margin on many personal computers can be 5 percent or lower, depending on the model. The margins are slim in part because of intense competition that has driven down prices. In some cases, the computers are profitable only because their makers earn $30 or more for each computer for preinstalling the software, according to Shaw Wu, an industry analyst with American Technology Research.

And J. P. Gownder, an analyst at Forrester Research, said, "For the average PC, that could be the entire margin." Without the preloaded software, Mr. Gownder said, "it could put them in the red. That's why they've become so addicted to it."

Mr. Stephens of Geek Squad says he agrees with H. P. that the future is in allowing computer buyers to choose and download what they want. But he said he believed Best Buy, not H. P., was in the best position to help people choose what works for them because, he argued, the in-store technicians are in closest contact with them.


   







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