Watford falls deep into the price gap

It won’t have been just the snow that put a shiver up the spines of most channel players last week. The news that Watford Electronics, the system builder and integration company, was acquired will have certainly sent tremors through the market.

Watford, which was acquired by Globally Ltd – a firm coincidentally registered at the same address as Watford – has been known for buying up defunct brands. It acquired the Tiny brand from the ashes of Granville Technology in 2005. Prior to that it bought PC brands Carrera and Demonite after Digital Networks went under.

While this strategy has worked thus far, it is expensive; brands whose parent company have gone under require a lump of cash to get them up and running again. It is also risky, as the brands must be recognisable enough that end-users want to continue buying them, even after disaster has struck their owner. Brand reputation and recognition is everything.

Watford also ploughed money into its RedTen brand, a broadband service it bullishly launched to cash-in on the Home Computing Initiative. The service included broadband with an LG PC; however, sources said the number of subscribers fell short of the 100,000 that Watford predicted. Also competing with free services from the likes of Carphone Warehouse and the telcos, such as BT and Orange, cannot have been an easy ride.

But the problem is not with Watford or its business model, it is with the market that it operated within. Even with new technology, such as Core 2 Duo and Vista, and the rise in consumer demand – and even to some extent pro-sumer demand – prices continue to fall. With the growth of Hewlett-Packard (HP) and others’ self-configured PCs and servers, not to mention the might of Dell, the margins within the system builder space have become unbearably squeezed. The market is working against companies such as Watford, and has meant that competing with HP, Dell and the telcos on an equal footing has almost become unsustainable for most in the sector.