Used Servers - Black, White or Gray Market?


2007/01/17 Corey Donovan - Vibrant Technologies
http://www.vibrant.com

This week's article is on the used server market, its portrayal in the marketplace and what to look for in a used IT hardware reseller.

In the field, the word "gray market" is typically thrown around with disregard for it's real meaning (product acquired from an overseas channel at lower prices than said product is provided in the local channel) in order to spread FUD. Some reps will even go as far as to refer to used IT hardware as "black market" or stolen/counterfeit equipment.

The truth is that if you're dealing with a reputable dealer, the product is probably as "white market" as a bake sale. Of course, you have to protect yourself and make sure you're working with a trusted vendor. Guidelines for feeling out a remarketed vendor are listed at the bottom of this article. First though, consider the following:

The manufacturers and distributors of the world (Sun, HP, IBM, etc...) would like you to believe any of the following scenarios regarding open market used versions of their products:

  1. The system was stolen
  2. The system is a counterfeit from overseas
  3. The system was a reject



The truth is likely any of the following scenarios:

  1. The equipment was traded-in from another user who gently used it and had it under maintenance with the manufacturer.
  2. The equipment has come off of a lease and been redistributed out to the open market (any where from 3 months to 3 years).
  3. The equipment was thoroughly tested and updated to the manufacturer's specifications before shipment.



There certainly are some slim shady dealers out there (a tiny minority), so it makes sense that the manufacturer's want to protect the users from them, although I suspect the manufacturers want to protect themselves from losing a deal for their brand new solution. So, how do you tell the wheat from the chaff?

  1. Do your due diligence - Check references, check BBB listing, years in business, etc...
  2. Ask if the reseller can put the following in writing on your quote and eventually on the signed purchase order:
    - All hardware is (XYZ manufacturer) original equipment.
    - All hardware is guaranteed eligible for the manufacturer's maintenance.
  3. Ask whether the licensing will be an issue.
    - Some manufacturers require recertification or new licenses in order to acquire maintenance and/or software.
  4. Get credit terms if you can.
    - Corporations of any decent size should be able to negotiate payment terms of up to 30 days. This basically gives you the opportunity to try before you buy. If the equipment doesn't meet your standards, you can return it without trying to recover your payment. If the first three precautions are taken, you shouldn't have any surprises, but it doesn't hurt to be cautious (and get on credit)!



While there are sharks out there, manufacturer's will over-hype their presence but these tips will help you navigate through the calm waters of the used IT marketplace.

Corey Donovan

Vibrant Technologies

Used Servers, Storage and Networking reseller

http://www.vibrant.com

952-653-1700



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Fri Jan 19 15:43:49 2007: 2820   BigDumbDinosaur


My opinion is that used servers are generally not a good investment. The cost of commodity hardware has fallen to where new technology is often not much more expensive than used equipment, and the purchaser benefits from the latest rather than what was current three years ago,.

Also, the warranty on used hardware (if any) is not likely to cover the biggest risk entailed with a second-hand server: data loss following hard drive failure. Used computer equipment has little actual resale value -- only a fool would pay more than scrap prices for a used box. Even the U.S. Internal Revenue Service recognizes this, as full depreciation of a server can be taken in one year.

Just an opinion.



Mon Jan 22 18:48:27 2007: 2823   CoreyDonovan


The best point I can make is that in general, servers (or any IT hardware) aren't a good investment from a re-sale perspective, whether they're new or used. Of course, the reality is that they're great investments when you consider what they do for the operations of a business. I would argue that it is a better investment if you get a used server that is 1year old at 1/3 of the new server price for only a smidge of a difference in performance (in most cases). Is that the case or the solution in every instance? - no, but it is a great solution for many clients. For other clients, it makes sense to buy a base model new server and purchase used memory or CPU boards and in this way they can often save big money on a max config. For some clients, only the latest model will do and they have to go with new. I certainly wouldn't say used is the solution in every case or maybe not even the majority of cases.

One misperception I should also mention is that many people think only 2nd or 3rd generation equipment is available used, but are surprised to find out that systems that have been offered new for only a couple of months can usually be found used. What happens is that huge corporations like a Sprint or AOL, purchase 30 servers, but find they only need 25. They dump the other 5 onto the used market (often still sealed new in the box). Other times employees receive them as bonuses or awards and have no need for them so they sell them to remarketers like Vibrant.

As far as concerns about drives going bad, some clients request that we only use new drives, in which case we can (or the client can) order new drives from the manufacturer to include in their used system. Its all about comfort level in the end. We ease our new clients into maybe just a memory upgrade or CPU upgrade. Then it works out great and they might pick up a used server for a test or development environment. For some clients, they love the discounts and the quality of the gear and end up buying almost all of their IT hardware used. But if a company is comfortable with only new or their applications require it, then that decision is right for them.



Wed Feb 21 16:14:49 2007: 2868   axelilly


Used servers are not for everyone nor for every situation. As mentioned earlier, the usual show stopper on used servers is normally a comfort level issue. However, in the right situations used servers offer great advantages on two fronts. The first advantage area is economically. Often used servers and parts can be acquired at great cost savings over that of new counterparts. It is true that the used items may not be exactly as fast as the latest new objects, but their capacities may still be more then enough of what is needed for the hardware. Secondly, and perhaps the greatest advantage, is one of enviromental concern. By putting used equipment into use again, that equipment is helping to lessen the amount of garbage heading to a dump, etc. Perhaps by not purchasing the new equipment you are also sending a message of lower production demand upstream that will cause manufacturers to create less parts. This would result in less oil, electricity, water, etc consumption. Reuse of equipment is a very noble cause. It is worthy to note that linux often is very useful for bringing used or older hardware back to profitable life.



Sun Mar 1 11:39:23 2009: 5568   edfair

gravatar
The manufacturers use FUD to protect their revenue stream, nothing else. I saw it at IBM in the 60s and probably contributed some myself while I was there. They were doing everything they could to discourage companies from taking advantage of the 1957 consent decree. Once on the dark side I saw it used regularly and did my best to educate potential purchasers about the plusses and minuses of buying or leasing used stuff and gave them guidance on the right questions to ask. Starting in 1973 and for probably 10 years I lived the battle almost weekly in my very small leasing business.
From other stories I've heard IBM wasn't (isn't) the only manufacturer that did anything they could to discourage recycled equipment.
My last 15 years have been mostly SCO based and any equipment supplied has been used. Those new supplied by others have been replaced by used as replacements were required.




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