'Gray market' for used computer gear growing

Economic uncertainty, an increase in network complexity, and the demise of many a dot-com is fueling the "gray market" for used servers and other secondhand computer equipment.

Aware of this, major computer manufacturers such as Hewlett-Packard Co., Compaq Computer Corp., and Dell Computer Corp. have each implemented their own programs to keep a grip on gray market sales of their equipment. But in doing so, these vendors must strike a balance between controlling their name brand merchandise and muscling in on the freedom of their reseller channel.

"[The gray market] can have a significant impact on your business," said Mark Hudson, the marketing manager for the business systems group at HP, in Palo Alto, Calif.

One of the elder players in gray market management, HP has operated its Finance and Remarketing Division for several years in an effort to maintain a balance between itself, its authorized resellers, and other rogue transactions that occur on auction sites like eBay.

"There's the potential for a black market, where you could have [unauthorized resellers] selling off the equipment and competing with your channel," Hudson explained.

HP balances control of returned or defaulted-on equipment by first identifying specific accounts that have HP as the prime partner. All accounts below that "hard deck" are the responsibility of HP's authorized resellers, Hudson said.

"No doubt this is a factor, and [gray market sales] can have a significant impact on your business," but a quick response time to the needs of troubled customers is key to controlling that impact, Hudson said.

"Whether [troubled customers] have been dot-coms that are no longer around or a dot-com that can no longer pay bills, if they're above that hard deck, our Finance and Remarketing Division goes there and expedites the transaction," Hudson said.

Hudson said creating such boundaries between HP and its resellers works, but still little can be done about sales of used equipment by private individuals using mechanisms such as eBay.

"There has always been a gray market [for computers], it has always existed," said analyst Joyce Becknell, director of computer platforms and architectures at the Boston, Mass.-based Aberdeen Group. But as the industry has transitioned from the mainframe computing model to today's multitiered server networks, the gray market has diversified, with everything from front-end Web servers to large database servers now available second-hand, Becknell said.

A Tuesday sampling of secondhand server offerings on eBay included servers ranging from thin, rack-mounted devices to large standalone servers at prices ranging from $199 to $20,000.

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