[Editor's Note: This article was written a few years ago. While the examples are showing their age, the principles remain unchanged and are still valid today.]
Should you purchase a computer system now, or wait until prices come down? Is it wise to plan ahead and buy for future needs? Over the past decade, computers have continuously become more powerful, and prices on any given model always plummet throughout its life cycle. There is no sign of this cycle ending -- if anything it appears to have accelerated. This is great for consumers, but it also creates a dilemma for them: if you buy today, your purchase will depreciate rapidly and quickly become obsolete; deferring a purchase, however, means you will face the same situation later. The best solution to this riddle, therefore, is to purchase today exactly what you need today -- but no more! There are caveats to this rule of thumb, however.
We are assuming that you do not have certain knowledge of imminent price cuts or technology announcements. If you do, common sense should dictate your actions. Generally speaking, if you need the equipment today, deferring purchases until the price drops may be the wrong move. You could lose money due to lost productivity or by allowing your competition to become more efficient. It is very difficult to quantify lost productivity -- the cost of not having the proper tools for the job. This is especially true if your competition does have the tools it needs. It's a pretty good bet that between two ditch digging companies, the one with a single backhoe will be more effective and profitable than the one with only a hundred garden shovels -- it's the tools, the backhoe, which makes the difference.
On the other hand, if you don't need it now, wait until you do before you buy. Naturally, you have to consider many variables, such as availability of cash, availability of product, and any delays in your procurement process. In other words, initiate the order so that the equipment arrives when your projected needs become acute. Ideally, your order will coincide with a recent price cut, but don't count on it.
Another implication of this rule of thumb is that, contrary to conventional wisdom, one should not buy more capacity or capability than what is needed today (e.g. buying a more powerful computer to address next year's needs). For most purchases, we usually consider our current needs as well as future needs. This is usually a prudent course of action since most of our major investments don't depreciate 35% or more a year and become obsolete within two years (or less). Consider this example: a year ago, 128Mb magneto optical (MO) drives cost around $1800. Today they are half that price. If your needs today can be met by a 128Mb MO drive, but you think that you might need a 256Mb MO drive next year, then buy the $900 128Mb drive today and pass on the $1800 256Mb drive. Next year you'll probably be able to buy that 256Mb drive for $900. Either way you will have spent $1800 total, but by deferring your purchase you'll end up with two drives, instead of one, and your second drive probably will be better technology (next year) than what you can buy today. You also will have been able to earn interest on $900 for one year. Additionally, you could sell your 128Mb drive to offset the purchase of the newer drive and have a tax write off on the "loss" you sustained on the 128Mb drive. (You came out ahead, but the IRS sees it as a loss.)
There are times when this strategy doesn't apply, however. Consider tape backup drives. Today you can purchase a 600Mb tape drive for about $700. Spend another $250 and you'll have a 2.1Gb DAT drive. The 600Mb drive is adequate for your current needs, so why pay more for the higher capacity drive you do not yet need? There are actually several reasons. The 600Mb drive has less than a third the capacity of the 2.1Gb drive, but that difference is hardly reflected in the price of the two drives. The DAT drive is more than 50% faster and the technology is probably more reliable. The cost of the DAT tapes is half that of the 600Mb tapes (making the DAT tapes, on a per Mb basis, more than six times cheaper). Clearly the cheaper media shrinks the $250 margin in the drives. Additionally, DAT tapes are smaller and take less storage space. Finally, DAT tapes are likely to be widely available far longer (and at a lower cost) that the 600Mb tapes.
As with any rule of thumb, there are exceptions as the tape drive and printer scenarios illustrate. Use your own best judgement, but beware the temptation of buying for the future. More often than not, buying for future needs in the computer industry will cost you money, not save it.
2002 update: A similar situation exists today with printers. Inkjet printers cost a fraction of the price of a laser printer, but when the cost of consumables (i.e. ink and toner cartridges) are factored in, laser printers prove far more economical than inkjets (most toner cartridges are good for 2500-5000 pages, depending on the printer). In many cases, the cost of purchasing and operating an inkjet exceeds that of a laser within the first six to twelve months. But this is a bit of an apples and oranges comparison in that we are considering black-and-white laser printers (rather than color laser printers), whereas most inkjets offer color even in entry level printers. Also, laser printers generally offer crisper, better quality print (even at lower resolutions) than inkjets, and properly fused laser print doesn't smudge or spoil if it gets wet. Laser printers are usually much faster and often quieter than inkjets. And one more subtle difference: most laser printers have an on-board processor for rendering the page; most inkjets use the host CPU and its resources for this, so you may pay a performance price by printing on an inkjet, possibly encouraging you to upgrade your computer sooner, or requiring you purchase more RAM. So there are often hidden costs which may not be readily apparent. The bottom line, however, is that while the inkjet may appear to offer more features for a lower price, laser printers may prove the better buy overall, depending upon your needs. Of course with purchase costs so low on inkjets, it might be a good strategy to have two printers: one of each. The inkjet could be used for your color printing needs, and as a backup for your laser printer.
2004 update: Prices on entry level (black and white) laser printers are now starting to compete head-to-head with entry level inkjets. Given their many advantages, laser printers may be the best overall value for the money. Additionally, even if you have an older laser printer which still works fine, it may be time to retire it. As an example, a new tonder cartridge for an Apple Personal LaserWriter NT/NTR or HP II/IIIp (same Canon LX engine) currently costs about 70% of the cost of a new HP 1012 laser printer with tonder cartridge. And the newer printer prints four times faster, requires far less warm-up time, and offers 1200 DPI effective resolution, rather than the 300 DPI of the Canon LX engine. Although the HP 1012's toner cartridge only prints 70% as many pages as the Canon LX based printers, new cartridges cost only 70% as much too, so the cost per page remains about the same. This is actually an advantage for low volume users as toner cartridges do not store indefinitely and an aging cartridge may need to be replaced before its toner is exhausted.
Note: Refurbished toner cartridges, while often cheaper to purchase, often do not represent a good value for the money; they are far more likely to fail (or exhibit degraded output quality) before the toner is exhausted.