In this article, Scott Berinato looks at the hardware market, and more specifically at the secondary market.
Here is the Executive Summary -- thanks to CIO Magazine.
In the wake of the 1990s technology bubble, there is so much used hardware available -- and so much emphasis on cutting costs -- that secondary market hardware is now a mainstream business. And once buyers get used to wholesale prices, it's unlikely that they'll go back to buying retail. CIO's survey of 187 IT executives showed that 77 percent are purchasing secondary market equipment and 46 percent expect to increase their spending on used machines next year. The savings from buying used can amount to 25 percent of operational costs, as it did for Tenneco Automotive. Meanwhile, some hardware vendors are trying to make purchasing on the secondary market sound as unappetizing as possible, implying that the cheap equipment comes from the semi-illegal "gray market." They tell buyers it will cost thousands to recertify the boxes. And they threaten to withhold support. CIOs who call these bluffs will find that the sales reps will either start trying to sell support services or they'll cut the price of their new gear. Buyers also gain leverage from the emergence of third-party companies offering alternative maintenance contracts.
Scott examines in detail the roles of the different actors in this market: the buyers, the brokers, and the vendors (both those learning to live with the secondary market and those in denial).
Let's listen to one of the vendors who embraced this new market, Irv Rothman, CEO of HP Financial Services. "Look, 40 percent of our [division's] revenue is from the secondary market. That's a big number."
Finally, the author asks a simple question: Who sets the price?
Paradoxically, the complexity of the secondary market was spun out of the simplest notion: supply and demand. When demand ruled, so did vendors. They set prices; they determined the value, or lack thereof, of used gear. Now supply rules, and CIOs have a great opportunity to grab the power to define value.
HP's Rothman calls it the law of the jungle. John Lynch, CEO of Asset Recovery Center (ARC) calls it the American way.
Source: Scott Berinato, CIO Magazine, October 15, 2002 Issue
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