Behind the News
Analysis of Industry Events
The Underground Unix Market
Beneath the surface of IT, out of the spotlights focused on new technology,
slick marketing brochures and grand product strategies, are publications
like Compu-Mart, Computer Hotline and Processor. In them you'll
find page after page of little ads that speak of a vast undercurrent of
computing businesses dealing in used gear, replacement parts and reconditioned
equipment--old and not-so-old technology looking for a home somewhere at
In Processor, published weekly and printed on newsprint, are the
refurbishers, the brokers, the auctioneers and the resellers. Their ads
shout, "We buy, sell and trade" or "Save up to 50 percent
on your [hardware vendor name] equipment purchases."
Although the market for second-hand Unix equipment is hard to gauge, brokers
may have a base of 1,000 or so Unix-buying customers, according to William
Liebsch, owner of such a firm, Market Sales Co. of Tucson, AZ. He estimates
that around 50 businesses nationwide deal in used Unix workstations, servers
and peripherals. He calls 15 to 20 of them "reputable businesses that
have real connections and can perform."
Current owner companies have an obvious motivation to sell their old equipment.
They have gear that's three-to-five years old and is being replaced by newer
technology. Just getting rid of outdated hardware can be expensive if a
buyer is not readily available who can use or recycle the stuff. So IS people
such as Bill Holt, manager of production open systems administration for
US West New Vector Group in Bellevue, WA, call a broker like Liebsch, who
will pay US West 10 to 20 percent of the product's original value if he
can resell it. Holt's usual sale items are peripherals, such as the 1.3GB,
5.25-inch disk drives he's currently trying to unload as a result of an
upgrade in his shop. "I have yet to have a problem being able to dispose
of them a short time after notifying him," Holt says. After finding
a buyer, Liebsch will notify Holt and arrange to have the equipment packed
New equipment vendors have their own motivations for selling through a broker--namely,
keeping their customers and phasing out old technology. "Customers
need options," says Bradley Palmer, business development manager for
Pyramid Technology in San Jose, CA, which sells both new and refurbished
Unix hardware through brokers. Palmer explains that Pyramid treats brokers
such as Market Sales Co. as an alternate sales channel. "Our customer
base is open territory," he says. "All the brokers, once they
find a vendor's customers, have [access to] them forever and are constantly
competing with the vendor for that customer's business. We supply them with
used gear that we get as trade-ins from customers. We refurbish it, test
it and certify it." This practice improves the relationship between
the vendor and the customer and may keep an old customer in the fold, rather
than buying generic or "gray-market" equipment as replacement
The vendor's other main concern is that older technology tends to become
a burden to maintain. "When you make something that stays around for
a dozen years, it becomes more costly to maintain than the revenue you get
for service," Palmer says. Therefore, selling newer hardware that is
discounted by brokers may pay off by keeping a customer more up to date.
Profiles in Purchasing
The customers for this used equipment are of two types. Some have limited
budgets and are just looking for an inexpensive way to keep their businesses
running. Others have niches in their systems that have to be filled with
specific equipment, which is more readily available from a broker or reseller
than from the original manufacturer; for example, failed disk drives or
monitors that must be replaced.
Usually buyers of used Unix equipment can expect to save 50 percent, sometimes
60 to 70 percent, off the original list price. Some of the hardware Liebsch
resells is just used, much of it sold by leasing companies or large user
organizations. Some is refurbished, some is new and discounted from the
manufacturer, and most is sold with a warranty of 30 to 90 days. "It's
good for the end user," Liebsch says. "It lowers their costs and
allows them to be creative with their budget and accomplish their goals
with a combination of generic, used and new equipment. As long as you know
how to pick through the mine field carefully, you can come out in an advantageous
But that mine field can cause headaches for managers who attempt to patch
their systems with used gear. In all cases, it's advisable to deal with
a broker whose reputation you know, who has been in the business for at
least several years and who will back up the goods sold. Some brokers work
in collusion to set prices on certain items, Liebsch warns, so it's good
to know who those dealers are and shop around enough to get the best price.
Also, when purchasing components, some degree of technical acumen is required,
such as the ability to swap out a board or unplug a disk drive and install
a replacement. The most important fact to know about the hardware component
is whether its revision level matches the equipment you already have, Liebsch
says. "You have to be careful on compatibility with your hardware and
software and get a guarantee that if you plug it in, it will play. You have
to deal with somebody who has the ability to order properly and get you
the technical help that you need."
Users who need discounts but also want insured reliability may choose to
buy from a well-known equipment refurbisher. Many used and refurbished equipment
dealers restrict themselves to one vendor's products. One such firm, Workstation
Technologies, headquartered in Fremont, CA, was formerly a partner and authorized
reseller for Sun Microsystems. Now it buys old Sun equipment from various
sources and resells it at reduced prices, much of it to users who can't
afford the switch from SunOS to the Solaris operating system, or from the
32-bit to the 64-bit environment.
"A lot of customers can't make that transition," says Michael
Cavallaro, president of Workstation Technologies, which has sold nearly
10,000 refurbished workstations in the last eight years. "Either their
applications don't run in the new operating environment or the cost of migrating
applications and retooling with new hardware far outweighs the benefit."
Whatever the motivation, when dealing in used equipment, it's advisable
to heed this warning. "You have to watch who you do business with,"
says Liebsch. "Plug and play, then pay." -Don Dugdale
Unix Sales Forces Adopt Two Tiers
The most dramatic change to hit the Unix marketplace over the past three
years is not in the products themselves but rather in the way that workstations
and servers are marketed and sold. Now that hardware profit margins are
shrinking, vendors are getting serious about two-tier distribution as a
way to lower their cost of sales. "Indirect sales are the order of
the day for all but the largest customers," says Dorothy Rosenthal,
manager of distribution channel research at International Data Corp. in
Mountain View, CA.
In the two-tier model, a vendor's direct sales force concentrates its efforts
on the high end--large companies that typically place multimillion dollar
orders. Gone are the days when members of a vendor's direct sales force
could increase their earnings by selling to companies who otherwise might
buy from a local reseller or a vertical market systems integrator in their
industry. Through new commission policies, vendors now encourage their sales
forces to help assure that most orders from customers at small and medium-size
companies are fulfilled through indirect channels. Each major vendor has
a group of volume resellers, systems integrators and vertical market solutions
providers, which comprise its channel. The channel buys its inventory from
distributors, who keep large inventories and offer financing and technical
assistance to their resellers. Typically distributors and many of the resellers
who buy from them stock Unix hardware from more than one vendor.
Encouragement of two-tier selling is not new. In 1992, both Hewlett-Packard
and Sun Microsystems began to incent their sales forces to assist rather
than sell against the channel. What's new is that all the major Unix vendors
are proactively helping their channels. Even IBM officially put its formidable
sales force in support of its channel late last year. The direct sales force
can now earn sales credit (commissions) equivalent to one hundred percent
of list price for assisting IBM's business partners in closing a sale. Tom
Jarosh, IBM vice president for GM operations in White Plains, NY, admits
that his company was following HP's lead in announcing plans to shower its
business partners with leads, a demand generation program and sales assistance.
"We will be rolling out new programs in our effort to stay in the lead,"
says Clark Straw, general manager of HP's worldwide channel partners program
in Palo Alto, CA. Sun also has tried to become its channel's best friend.
"We're creating demand by merchandising our partners and holding events
that bring resellers together with customers," says Jay Laurenzi, vice
president of marketing for Sun's North American field organization in Dallas.
View from the Channel
Kevin Klimers is an advanced systems consultant at Allied Computer Group,
a systems integrator in Milwaukee that specializes in networking. As a reseller
of Unix systems from HP, IBM and Sun, Allied has had a firsthand view of
vendors' changing attitudes toward assisting the indirect sales channel.
IBM's change is the most dramatic, says Klimers. "They're not throwing
us table scraps any more. They're inviting us to seminars and asking us
about our specialty so that they can bring business our way."
Gordon Dickens, CEO of Dickens Data Systems of Roswell, GA, a remarketer
and systems integrator for the IBM RS/6000 that has been in IBM's business
partner program since 1982, has also noticed a change. "In the past
60 days, I've been embraced by the IBM field sales force. We're now brought
in to situations that they formerly kept to themselves," says Dickens.
Klimers notes that members of vendors' direct sales groups can lend strong
support to help close deals. "It's as if we have a second sales force,"
For example, without assistance from Liz Fitzgerald, a sales representative
in HP's Naperville, IL, office last September, Allied would have had to
walk away from a demanding set of requests from Custom Products, Inc., a
Milwaukee-area custom machining company that wanted to upgrade a manufacturing
and accounting system, based on software from Symix of Columbus, OH, running
on an RS/6000. David Schliewe, Custom Products' director of information
services, wanted Allied to replace the RS/6000 with an HP 9000 K200 server;
lay about one mile of fiber-optic cable between Custom's five buildings
and about 10 miles of twisted-pair cable inside six buildings; install and
configure about 200 non-HP PCs and six HP file servers and configure all
printers and other related peripherals; get a dozen Sun computer-aided design
(CAD) workstations to work on the same network; and implement full network
management. Schliewe wanted everything up and running in less than two months.
The first and biggest problem was that Allied gets its Unix servers from
distributor Western Micro of Palatine, IL, which did not have a K200 server
in stock. At Klimers' request, Fitzgerald worked with Western Micro to get
the required order numbers and communicated with HP's manufacturing facility
to speed up the Custom Products order. With that help, Allied was able to
take on the large project despite Custom Products' stringent requirements.
The work was completed by Nov. 1 as specified.
To Fitzgerald, who has worked on HP's sales force for five years, cooperative
selling is nothing new. "It only makes sense to funnel certain business
through the channel," she says. What may be new is the universal acceptance
by major competitors of the same strategy.