As the whitebox market fights for its life, local players are reinventing the wheel and dishing out a few survival tips. Strength in numbers is a main strategy.
It's a classic scenario. By building up a large team which works towards a common goal, the little guys are able to battle it out against larger, more powerful competitors - and make a statement while doing so.
Crossing over to the world of IT, the strength in numbers scenario is being touted by small, independent dealers in the whitebox market as a way to stay alive and kicking in the increasingly cutthroat market.
With today's razor thin margins in the PC business, and the intense competition from the multinationals and growing price aggression, the local whitebox manufacturers are feeling the heat - and some are generating some creative ideas on how to stay competitive against the mighty multinationals.
The multinationals were hitting hard with the introduction of cheaper branded notebooks has hit hard because unlike their whitebox cousins, the major brands could survive on $10 margins thanks to volume sales, Gartner PC analyst, Andy Woo, said. A well-oiled supply chain was another competitive advantage.
So what's the answer? The formation of a professional group to help local players fight margin pressure and gain influence with vendors and distributors, Computer and Things (C&T) Systems director, Craig Webster, said. And that's just the tip of the iceberg in terms of possible benefits from banding together.
"The group would help us find a voice," Webster said. "The main advantages would include better buying discounts, finance rates and corporate advertising campaigns."
On the financing front, a services company may require a dealer to have three branch outlets in order to get interest-free finance, he said.
"But if there were 50 dealers, the finance company would take notice of us and negotiate better options."
With regard to bulk buying, once membership reached a certain level, he said the group would be able to negotiate bulk buying deals on items such as RAM, hard drives and printers.
a shared voice
Pulling together might also translate into better support from vendors and distributors, he said.
"The support that the dealer chain gets from some vendors is pathetic," Webster said. "If you are outside of the Sydney or Melbourne area, you are going to find it hard to get support."
How will it all work? Initially, membership fees wouldn't break the bank, he said.
"We could get it cheaply off the ground [members could pay a small fee of $100] and start building relationships with each other," Webster said.
When numbers increased, fees could be raised to cover things such as regional conferences, where members could come face to face with vendors and distributors.
But there are challenges. The current lack of action and reluctance to work together is a problem. Webster, who is on a mission to rally the troops, said there was not enough talk about situation in the IT trenches, particularly at the association or society level.
Bodies such as the Australian Retail Trader's Association or the Australian Computer Society were ideal candidates to bring this sort of dealer group under its wing, he said. The groups already had the infrastructure in place and a critical mass of members.
"I'm shocked at the lack of interest being shown by existing bodies to this market," Webster said.
"The Australian Computer Society, for example, should have a division specifically for computer dealers. Any wholesaler would have a good list of dealers. We need to get together and form a concentrated voice."
For it to run smoothly and offer value to partners, Webster said the group would need to develop a professional code of conduct. It would also have to deal language barriers.
And while many dealers might be reluctant to join for fear of losing their competitive edge, Webster said the group could initially welcome one dealer per region or per suburb, so there was no territorial overlap.
"We could do this plan until we build confidence and know we're not ripping each other off," he said.
Gartner's Woo said while the group sounded like a good plan, there were many unknowns - perhaps too many.
"The group sounds good theoretically, but what's the main objective?" Woo said. "Is it about getting cheaper prices or better deals from the likes of Intel and AMD? What's the point and main benefits? Dealers need to consider the end game, and pinpoint the tangibles. They also need to build up trust and relationships, which might prove difficult."
Pioneer Computers managing director, Jeff Li, said it would be tough to engender trust among members given the dog-eat-dog nature of the whitebox market.
"There are still resellers who are dumping at rock bottom prices and are more than happy to undercut each other to get a sale," Li said.
"Customers are also prone to contact more than one reseller, even among the same group to search for a better deal."
"If there are indeed some killer products or new business opportunities, instead of sharing this information to other members of the group [who are potentially your competitors], it makes perfect sense just to keep it to yourself," Li said.
So while the company has been calling for unity among computer resellers for years, Li said there were practical difficulties in forming buying groups. "The benefits of the formation of buying groups are thought to be getting quantity discounts for bulk buying, co-op advertising, education and training," Li said.
"But margins are very small at wholesale level. Some wholesalers have almost no margin and rely on rebates. There is not much room to move for bulk buying."
Ingram Micro OEM business manager, Danny Kwoh, said bulk buying would prove difficult because there were slim margins at the wholesale level.
He said the group would find it hard negotiating with vendors given there was no real structure or process in place.
"From a volume and discount perspective, it's not a long-term solution," Kwoh said.
There are also bigger margins when distributors work in concert with the smaller, independent dealers.
"If they all team up, where's the margin?" he said.
"For a distributor, the aim is to service individual customers. There's more profit in it."
Kwoh was not surprised the group idea had come to the forefront given the growing, blistering pressure from the multinationals.
"It is a reactive plan in order to go up against the multinationals," he said.
And while he has heard of several dealers striking up an alliance, there is nothing happening, officially.
Plus Corporation managing director, Nigel Fernandes, said the creation of a whitebox group had been flogged to death - and he was unsure about its viability.
"I thought Dicker Data did that years ago, and hasn't Leading Edge already mastered the art already? he asked.
"I also recall Compaq trying a similar thing with a few dealers, only to find it a waste of time and money. And while he wasn't opposed to the idea, he didn't think it would have much benefit.
"I would look at it with interest, but I'm not sure it would be viable," Fernandes said.
"These days buying power does not bring much of a discount, I looked at all the benefits Leading Edge group have, and basically we have already negotiated the same deal, as does any company who expects to remain in business.
"Things such as lower merchant fees for credit card transactions, longer credit terms with the larger disties, better freight rates - we already have. It's old news I think."
Optima managing director and executive chairman, Cornel Ung, said the group idea wasn't new, and it might offer the industry more power in terms of lobbying the government.
"It might convince the government to buy local products and to look at local service," he said.
While Ung said better buying discounts might result, he said the company already got this from its direct relationship with vendors including Intel and Microsoft.
Battling it out in the whitebox trenches, differentiating through services was another whitebox market survival tactic, Gartner's Woo said. Partners should look to add value on the warranty front, which is particularly attractive to the consumer and SME space.
"The PC business is not a bed of roses, but there are opportunities to sell services into niche markets," Woo said. Optima's Ung said services was the best way to stand out from the crowd.
He said the company was finding success offering installation, helpdesk, desktop management, and project management services in the government and education sectors.
"These segments will pay a premium for services," Ung said.
Pioneer's Li agreed many computer resellers could no longer survive on selling hardware to make a living.
"Those who flaunt computer hardware are online and don't necessarily have a shop-front," he said. "There are comparison websites that show up all prices at a split of a second, so the costs and margins are very transparent."
Resellers should also check out the whitebook space for some action, Intel Australia channel marketing manager, Andrew McLean, said.
The message has been touted before but there is a lot of life in this market. However, Woo said whitebooks continue to be more difficult to assemble.
The whitebook market represents about 9 per cent of the overall whitebox space, which accounts for 40 per cent of the Australian PC space. Ingram's Kwoh said he expected the digital home, including advancements in the Media Center space, would boost the market next year both from a desktop and notebook perspective.
Increasingly, these and other ideas were being tossed about by the whitebox community and there were more to come. "They are fighting for their survival," Kwoh said.