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December 23, 2002 (Computerworld) -- Would you buy a used router? Would you be comfortable sending sensitive data through it? Whom would you call for service if it broke down? Oh, and would it make any difference if the router was formerly owned by Enron?
Online auctions are merely one part of the $20-billion-a-year secondary market, the practice of buying and selling hardware through nontraditional channels. Companies like Asset Recovery Center, ITparade.com and Network Hardware Resale purchase hardware from troubled or crumbling businesses (which are plentiful these days) and resell it, often at eyebrow-raising prices. According to Robert Davie, founder and CEO of ITparade.com, the lousy business environment of the past few years has so glutted the secondary market that prices typically range between 20% and 30% of manufacturers' suggested prices for new equipment.
Networking hardware is a natural candidate for the secondary market because the equipment has a much slower upgrade/turnover cycle than, for example, PCs. "There's so much networking gear that's still current," says Mike Sheldon, Network Hardware Resale's vice president of operations. As an example, he cites Cisco Systems Inc.'s 3640 line of routers. The venerable 3640 uses a 100-MHz RISC processor and is still sold new for about $6,000. The price on the secondary market: $2,500. "Ours is two years old, but it's the same product," Sheldon says.
Vendors, which have been staring at red ink for two years, aren't happy about the secondary market. "It doesn't do these companies' resellers much good if everybody buys their equipment on eBay," says Zeus Kerravala, an analyst at The Yankee Group in Boston. However, their counterattacks vary. Sun Microsystems Inc., IBM, Dell Computer Corp. and others have taken at least a partial "if you can't beat 'em, join 'em" approach by launching eBay auction sites of their own. But Sheldon and other resellers complain that Cisco (which doesn't auction its own gear on eBay, though hundreds of others do) engages in such tactics as attempting to deny service to IT shops that buy through the secondary market and charging sky-high inspection fees. "Cisco hates us," Sheldon says. "They're on the offensive to stop the secondary market; they view us as their only competitor."
Publicly, Cisco shrugs off the secondary market's effect on its sales, calling it insignificant. And the company denies that it withholds service to IT shops that step out of line.
Regardless of who's in the right, IT managers have to wonder whether they're prepared to step into the crossfire.
Ulfelder is a freelance writer in Southboro, Mass. Contact him at sulfelder@yahoo.com.
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