'Grey market' for used computer gear growing

'Grey market' for used computer gear growing

Economic uncertainty, an increase in network complexity, and the demise of many a dot-com is fueling the "gray market" for used servers and other secondhand computer equipment.

Aware of this, major computer manufacturers such as Hewlett-Packard, Compaq Computer, and Dell Computer. have each implemented their own programs to keep a grip on gray market sales of their equipment. But in doing so, these vendors must strike a balance between controlling their name brand merchandise and muscling in on the freedom of their reseller channel.

"[The grey market] can have a significant impact on your business," said Mark Hudson, the marketing manager for the business systems group at HP.

One of the elder players in grey market management, HP has operated its Finance and Remarketing Division for several years in an effort to maintain a balance between itself, its authorised resellers, and other rogue transactions that occur on auction sites like eBay.

"There's the potential for a black market, where you could have [unauthorised resellers] selling off the equipment and competing with your channel," Hudson explained.

HP balances control of returned or defaulted-on equipment by first identifying specific accounts that have HP as the prime partner. All accounts below that "hard deck" are the responsibility of HP's authorised resellers, Hudson said.

"No doubt this is a factor, and [gray market sales] can have a significant impact on your business," but a quick response time to the needs of troubled customers is key to controlling that impact, Hudson said.

"Whether [troubled customers] have been dot-coms that are no longer around or a dot-com that can no longer pay bills, if they're above that hard deck, our Finance and Remarketing Division goes there and expedites the transaction," Hudson said.

Hudson said creating such boundaries between HP and its resellers works, but still little can be done about sales of used equipment by private individuals using mechanisms such as eBay.

"There has always been a grey market [for computers], it has always existed," said analyst Joyce Becknell, director of computer platforms and architectures at the Aberdeen Group. But as the industry has transitioned from the mainframe computing model to today's multitiered server networks, the gray market has diversified, with everything from front-end Web servers to large database servers now available second-hand, Becknell said.

A Tuesday sampling of secondhand server offerings on eBay included servers ranging from thin, rack-mounted devices to large standalone servers at prices ranging from US$199 to $20,000.

Compaq Computer set up its Cross Borders Program last year to deal with issues surrounding the gray market sales of the company's products, according to Elizabeth Gillan, a spokesperson for the Houston-based computer maker.

Most of the grey market issues "surround a product quality standpoint, to make sure that customers are purchasing from authorized distribution sources and to preserve the integrity of [Compaq's] distribution channel," Gillan said.

"We conduct audits of distributors and reseller partners," Gillan said. "We're also putting in place better monitoring tools to highlight or flag certain suspicious activities."

Compaq is proactive with its Cross Boarders Program, filing suit last year with one distributor who represented themselves falsely in an effort to get better pricing from Compaq on a bulk order, Gillan said.

Dell Computer offers refurbished versions of nearly all of its product line on both its Web site and through Dell Financial Services (DFS), according to Laura Thomas, a DFS spokesperson.

"I think you've seen a blip of an increase [in grey market sales] as a lot of companies that should have died, finally died," Becknell added.

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