The News & Observer: Document Display

The News & Observer

April 13, 2001

Used-equipment site looks to clean up on dot-com mess

Author: Christina Dyrness; STAFF WRITER

Edition: Final
Section: Business
Page: D1

Index Terms:
hi-tech
retail
ITParade.com
Internet

Estimated printed pages: 3

Article Text:

CARY -- When the folks at ITParade.com heard late last year that another big-name Internet company was going belly-up, they didn't pause to wax nostalgic about the glory days of the Web.

They got on the horn and punched in eToys' number.

A Web site gone dark, they figured, would mean idle Internet equipment. And with eToys' creditors circling, there was money to be made in helping the online toy store find a buyer for its used gear.

In a pattern being repeated across the beleaguered dot-com landscape, top-of-the line routers, servers and personal computers are being snapped up and resold at bargain prices. It's hard to shake the image of a vulture picking at a pile of bleached bones, but to those who specialize in second-hand technology, dot-com deaths have been a boon to business.

Robert Davie, founder and president of Cary-based ITParade, says it's a matter of supply and demand. His Web site caters to a network of buyers who are hungry for bargain equipment.

"We just made a quick phone call to eToys," Davie says. "We called them in December. They were shutting down their European operation first, and eToys signed a contract with us that we were the exclusive seller of their equipment."

Before that, ITParade helped Pets.com - which went bust in November, nine months after its $82.5 million initial stock offering - find a buyer for $710,000 worth of machines, Davie says. And now he's working with Priceline.com, which is scaling back its operation.

The buyers? A different kind of Internet company - those looking to save money.

"The new dot-coms are very cost-conscious," Davie says. "They're looking to the refurbished marketplace. They get more equipment and get it at much less of a cost."

That's quite a change from the good times when cash was easy to come by, either from venture capitalists or public offerings of stock.

"There was so much available money, it was basically thrown at equipment. They all bought the best stuff," says Mike Howard, a consultant for Horizon DataCom Solutions, a used-equipment buyer in Columbus, Ohio.

Howard, Davie and others like them act as matchmakers between buyers and sellers, earning a fee based on a percentage of each sale. The buyers often refurbish and resell the used equipment - at a 10 percent to 25 percent markup. Many even sell the products on ITParade's site, giving the company yet another sales fee.

ITParade also charges dealers a $1,200 annual subscription fee to view used equipment on the site.

Howard, who helped Davie negotiate the Pets.com sale, says working with dot-coms is challenging.

"While they have been disillusioned with their inability to come to market, they still believe that their hardware is worth near [retail] price," he says. "That's a measure of how out of touch they are with the real world."

Like a new car that depreciates in value as soon as it's driven off the lot, computer equipment drops dramatically in price as soon as it's used - figure a dollar per megahertz of processing speed (usually 300 or 400 MHz) for a used personal computer.

The difference between a shiny, new mainframe and a used machine is a bargain-hunter's dream - name-brand gear without the name-brand price. A top-notch Cisco Systems router fetches $17,000 new. Refurbished, it can be had for $6,600. And a high-performance server from Sun Microsystems? A new one costs $29,995, compared with just $19,750 for a used model.

"Even though budgets shrink, companies still need the equipment," says Tom Kuipers, chief executive of International Systems Management in Norcross, Ga., a dealer that bought equipment from Pets.com and BaseballExpress.com through ITParade. "They have more data than they can handle, so they can't just sit still. They'll look for dealers like me to buy equipment from."

One such penny-pinching start-up is eCogNito of Alexandria, Va. Preparing to launch an Internet service that will protect the anonymity of online buyers, the company cobbled together a minimum amount of cash from various sources and is working with a pared-down budget.

Chief Technology Officer Ed Sigler estimates that eCogNito saved 50 percent by buying used Sun and Cisco equipment through ITParade and other sources.

"With the shrinking environment, there's a lot out there," Sigler says. "Why not let somebody else pay for the depreciation?"

Those can't be very encouraging words to hardware manufacturers, almost all of which are reporting poor sales, but are good for what many call "the gray market" for used gear.

"There may be kind of an upward spike here because of the dot-bombs," says Jim Slaby, an analyst with technology researcher Giga Information Group.

Although the low prices may be tempting, Slaby warns that the merchandise often comes without a service contract, and the life expectancy of equipment, especially networking gear, is short. For example, a year-old router will last only another year or two before it's out of date, he says.

Says Slaby: "There is no free lunch."