My old mac's a dustbin

Forget gorblimey trousers and Steptoe, says Pete Morris, firms selling revamped or overstock kit are making a killing.

For most, the computer market is made of giant corporations thatelling revamped or overstock kit are making a killing. supply shiny new PCs which they help to replace in six months' time with the latest development. But there is a massive and largely unseen market in the UK for selling kit that is no longer wanted by its owners - a market that encompasses the second-hand dealer market, recycling companies and the manufacturers' overstock market which is dominated by Howard Strowman's PST. Together these PC brokers have created a massive alternative channel in the UK recycling redundant kit.

Overstock differs from second-hand broking in that the systems being bought and sold are new. But the one thing companies operating in both markets have in common is an ability to spot value in something others consider obsolete, or at least surplus to requirements, and then sell it on either in the UK or abroad.

The second-hand dealer market is a growth area fuelled by the fact that many of the PCs companies first bought when the PC market expanded dramatically two or three years ago are being replaced by newer and faster systems.

There are no accurate figures for how large the second-hand dealer market is in the UK, but analysts estimate that PCs are being replaced every four years, so 25 per cent of all PCs being sold (by volume) are leaving companies every year.

Systems coming out of companies are the cheaper, older ones - but even assuming their lowest value, the number of PCs entering the second-hand channel is likely to account for about two per cent of the overall PC market by revenue - a figure in the hundreds of millions of pounds. This begs the question for PC buyers of what they do with the systems they no longer want.

Rod Best, MD of Witham-based broker RDC, says this fallout from large companies is the key to why the second-hand market is taking off - and even becoming respectable. Former sales director at reseller Bonsai, Best says large customers have had PCs cascading through their ranks for the past four or five years, and he realised they would eventually need to get rid of the slowest ones altogether. 'Once everyone in a company had a new PC the question was where did the stuff that fell out of the bottom go?' he explains.

SIMPLY THE BEST

Having to deal with large corporate customers and their well regulated way of doing business has both increased the size of the second-hand dealer market, according to Best, and given it a form and structure it had previously lacked.

'It is no longer the PC equivalent of rag-and-bone men doing the PC collection,' he says. 'If you deal with large, professional customers then you have to be professional too.'

The increased professionalism in the second-hand market, particularly when it comes to corporate kit disposal, has also been fuelled by environmental issues. There are no specific regulations concerning the disposal of PCs - although there are with certain second-hand monitors - but large companies are rightly concerned about the bad publicity of their old kit being dumped in public - with or without sensitive data on board.

The increased legitimacy of this market was doubtless one of the reasons why memory distributor Datrontech forked out #5 million to buy RDC earlier this year. 'We were the first broker to be bought by a major player in the PC industry,' says Best.

'But big dealers will start to move in and buy up other brokers.'

The reason, he says, is that corporate dealers increasingly have to offer a cradle-to-grave service for their customers' PCs, and the only way to give a PC a good burial - or prolong its useful life - is to use a broker.

The key to computer broking for corporate customers is realising you cannot cherry-pick kit. 'Some stuff that we collect goes straight to the landfill,' says Best. 'On some systems we can recycle the parts, and on newer PCs we can make money.'

There are a number of ways for brokers to get hold of surplus kit. They can buy PCs off the customer and sell them on, or they can sell the PCs on the customers behalf and take a percentage of the sale price - typically 30 to 50 per cent.

The cherry-picking rule also applies to types of customers, according to Best. The easiest customers to deal with, he says, are city institutions that have large numbers of PCs on one location - this makes collection far easier than, say, large numbers of building society branches throwing out one or two PCs. As for the destination of the kit, Best says the bulk is exported to former Eastern Bloc countries like Poland and the Czech Republic. 'We put specs up on the internet and brokers there contact us,' he says. Some kit is also sold in the UK.

Having an effective way of selling on large numbers of systems is also essential to broking. 'Many people are put off because it's a high-volume and low-margin business,' says Best. 'We can only take so many PCs because we have three auctions a week, which gives us an effective method of disposal in the UK.'

Best claims that about 30 per cent of the PCs he sells at auction are second-hand, with the majority being his own-brand kit.

TAM TO THE SLAUGHTER

While the conventional computer broker model involves buying the kit off the customer and selling it on, a more sophisticated method has been developed by Technical Asset Management (TAM), based in Welwyn Garden City. TAM acts as a sales agent for corporates wanting to dispose of kit.

The corporate remains the owner of the kit until it gets sold, but TAM takes it from the company, catalogues and stores it - and advises on the best way of getting rid of it.

The customer gets a report on the condition of the kit, recommendations for disposal and the knowledge that the disk has been wiped and other identifiable marks have been removed. 'There are five main output channels for redundant kit,' says TAM national accounts manager Steve Haskew. 'Staff sales, charity donations, general market resale, redeployment within the company and environmental recycling.'

Of these, staff sales and general market reselling are the most popular, and recycling is done only when the system is beyond repair. 'Most brokers do cherry-pick PCs,' says Haskew. 'And they tend to value low if they are buying the kit themselves.'

ON THE PST

TAM charges its customers either a fixed fee or percentage of sale for each PC - whichever is greater. 'The main difference between us and a broker is that we add value to second-hand sales,' says Haskew. TAM also works with resellers that sell new PCs, backing them up by offering customers ways of getting rid of the old PCs that are being replaced.

What the customers want, of course, is a way to get rid of their old PCs and get a discount on new kit at the same time. Although this model is used in a number of industries, there is still no effective mechanism for it in the PC industry. Using a broker or sales agent, customers can get a retrospective discount - by getting cash back for their old PCs.

But many in the industry believe a system where manufacturers support a trade-in programme that gives the customer a front-end discount would boost channel sales.

So there is an increasing recognition of the need for a structured method of off-loading second-hand PCs from customers, as well as a structured way for manufacturers to sell on their overstock. Being able to offload older kit without offending, and directly competing with, the channel has long been a key issue for all manufacturers.

Howard Strowman, owner of over-stock specialist PST, says that as the pace of change in the industry increases, manufacturers increasingly need a plan to deal with overstock. 'For a long time manufacturers simply ignored the overstock market,' he says. 'But this is a constantly changing industry and there is always excess stock.'

Manufacturers, he says, used to see it as a sign of weakness to admit that they had stock they could not sell through their normal channels.

Overstock is also cyclical, he says. Once one manufacturer in a particular market sector starts off loading kit to bring in a new range, rivals tend to follow suit.

TIN END OF THE WEDGE

But times have changed and there is now a recognition that overstock affects all manufacturers at some time or another. 'The key with overstock is to listen to what the manufacturer wants to achieve,' says Strowman.

'We have to open up secondary markets for manufacturers kit so we do not affect their channel in the UK.'

Managing to sell off overstock from manufacturers in the UK without causing a conflict in the UK channel is the art of the overstock specialist.

FAITH, HOPE AND CHARITY

There are two ways for corporates that are disposing of PCs and want to donate some or all to charity to proceed, according to Steve Haskew at TAM. 'Corporates would give us a set number of PCs and we would donate a percentage to charity, typically 10 per cent,' says Haskew.

But a more effective method is for the redundant PCs to be sold and the cash to be given as a donation for the charity to buy their own new kit.

'Charities need new PCs as well,' he says. 'One Pentium can be more use to them than three older systems.' This method also avoids the stigma of charities and educational establishments having to use 'second-hand' kit, that is deemed no longer fit for business.

A further problem is that there is a plethora of small-scale PC recycling schemes across the country, all working to bring together businesses that want to donate kit to worthy causes. But as yet there is no central co-ordinating body that brings the two sides together in a large-scale way.

This is starting to change, as a number of recycling projects have come together under the Bytes Twice programme, run by the Association of Commercial Computer Recycling Organisations, which brings together about 25 companies and charities. One of the founders of the scheme is Systems International Research Institute, a charity off-shoot of the Brighton dealer Systems International - recently bought by a subsidiary of US giant General Electric.

SIRI consultant Peter Hall says that in the 18 months the charity has been going, it has placed hundreds of PCs with charities, as well as running other schemes with universities to bring the academic and business worlds closer together. Donor companies are asked to pay a small fee for the cost of handling PCs, which are collected, upgraded and then passed on to worthy causes. Hall says the Bytes Twice programme will be beneficial in better targeting needy organisations and bringing in a code of conduct for the recycling sector.