Five years ago, the majority of resellers and corporate end-users in the ICT industry would have told you that buying a so-called ?white box? or ?clone PC? over a branded PC was cheaper, but product reliability was a major issue.
The argument was that if companies (and even individuals) were prepared to pay the 25 to 35 percent price premium, they would benefit from the quality of the branded products, and the back-up and support were far superior to PCs put together from a number of different vendors? components, by an operation that did little more than drop boxes.
Today, however, the picture is very different. According to Mark Lu, CEO of Rectron (Pty) Ltd., the technology and quality gap between branded PCs and clones has closed to almost zero.
What is the big deal with brands then? What would influence the decision to buy a tier one brand over a clone machine?
If you open both PCs, they both use Intel Corp. or Advanced Micro Devices Inc. processors, Intel or AMD motherboards, similar hard drives, similar RAM, and have more or less the same number of USB ports.
One of the main reasons would be the drive, especially from corporates, to standardize equipment.
Larger corporate clients have an inherent need to make sure that everything is the same from a manageability and support perspective. There should be no difference between the components and pricing of a PC bought today and a PC bought last month.
The perception for some is that the clone market is still saturated with multiple brands for the same components and ever-changing prices, which counts against companies wanting to standardize equipment.
However, the majority of distributors in SA have taken on a PC brand, offering standardized components for each brand. Rectron, for example, promotes the AOpen PC, which includes all AOpen components. Similarly, Light Edge Technology has the Emerald PC, which is standardized on MSI components.
While there may have been an industry tendency towards the clone or white box market in the last three or so years, it seems that the days of the clone or true white box (comprising kit from multiple distributors and vendors) are almost over.
So are we being ripped off?
Opinions are still divided. Having spoken to a few resellers and distributors, some seem to think that we are being ripped off, while others believe that there is place in the market for name brands and clone PCs. Lu believes that there is a place for the name-branded PC vendors, and there is a definite place for resellers of clone PCs.
According to Hewlett-Packard Co. personal systems group country manager, Paul Boshoff, over the last few years, however, the prices of branded products have fallen, mainly due to the stronger rand and heightened demand making them competitive with clone boxes.
?The price premium of the branded products is today less than 10 percent,? he says. According to Boshoff, the big differentiators, really, are services, value-adds and product innovation offered by tier one vendors, as a result of increased R&D spend.
Lu adds that the channel is almost mandated to create more value in today?s world, so slapping a PC together from the cheapest components available from multiple distributors is no longer a viable business model.
For example, Boshoff says, HP?s wide product portfolio includes a number of products from printers and cameras to PDAs and PCs, all of which comply with the company?s philosophy of ?Better Together?, i.e. based on similar standards to ensure product compatibility and ease of use.
Dell is another example where logistical and support services are the core of the business, and count as a huge differentiator in the PC and notebook market. While the company?s equipment is by no means the cheapest equipment on offer, its next-business-day and human-error warranties make its products some of the most compelling on offer to end-users.
In the reseller channel, however, the model need not be any different. Distributors in SA are well positioned to offer an abundance of stock items to ensure the constant availability of spares and components.
The reseller needs to establish, or adjust, business processes to ensure that the same levels of support and service can be offered, with the potential to offer cheaper, high quality equipment.
Building on an established brand and pitching it effectively against the white box counterpart requires true grit, says Atul Gupta, MD at Sahara Computers.
?Brands are identified and differentiated by the quality of their components, compatibility with peripherals, overall cost, performance, service and quality,? he says. ?Reasons to go for an established brand should be compelling and clear, and this is where the competition comes into the picture.?
Bobby Richter, technical director at Light Edge Technologies, adds that another major differentiator for branded products is the fact that they comply with various safety and quality standards such as SABS and ISO.
?While most distributors will endeavor to offer high-quality products in the white box and branded arenas, end-users definitely benefit from the increase in R&D spend and levels of product compatibility and innovation in branded products,? he says.
On the flipside, distributors such as World Computer Systems (WCS) have often lashed out at the ICT industry for continuing to ?cheat? the unsuspecting public. It says companies are losing millions of rands each year by making the wrong ICT decisions, and this has brought the ICT industry into disrepute once again.
WCS CEO, Mohammad Denath, says that end-users are easily influenced by advertising, and he believes they still trust the so-called ICT professionals. ?Clients continue to make purchasing decisions based on reseller recommendations. When it comes to purchasing PCs, they typically purchase known brands like HP, IBM and Dell, but they do not realize that they can buy better technology at a portion of the price. They are not aware that ?white boxes? contain the same, or even better components, than branded computers.?
?Furthermore, clients continue purchasing high performance computers when they actually do not need them. This is often as a result of recommendations made by unscrupulous computer resellers, who want to make as much profit as possible, they are not really concerned about the company?s specific requirements,? he stresses.
Do not lose focus of the quality and personal relationships by only concentrating on the brand, is the opinion of Kyle Pillay, director of New Business development at Zenith Computers, newcomer to the local PC market.
The hype around the ?brand? suggests that all you need to do is create awareness, which means that if you put the logo out often enough your products will sell. Does this then mean that quality; credibility and trust among users is irrelevant? Brands are often also associated with a higher price tag. And does a big advertising and marketing budget, which allows you to create awareness of the name, necessarily guarantee a good quality product?
Generally, the white box will fit in where money is an issue, especially in the education sectors and other places, where an additional 10 percent price premium would hurt an IT budget.
?However,? says Richter, ?there are a number of intangible benefits in the way of lower TCO and maintenance costs for businesses with opting to purchase branded products.?
Show me the money
Recent IDC research on the local desktop and mobile markets shows that the tier one vendors and distributors are gaining a lot of ground on traditional clone distributors. For desktops, HP, rated locally as number one in SA, has shown a 70 percent growth in desktop units for Q3 2004, while Mecer sits at position two and Dell at position three.
Rectron and Sahara sit at positions five and six respectively, showing higher growth rates than the likes of IBM (seven), Fujitsu Siemens (eight) and Acer (nine).
While the industry is split in opinion about buying brands versus clones, the argument does weigh heavily in favor of brands.
Given the reductions in price, and the fact that many of the major distributors have taken on brands, the pure white box market could see itself being pushed into its own little niche corner by the sheer value offered by brands.
Having said this, there may always be a market for white boxes where price sensitivity still rules, but it is clear from the identified trends that brand distributors and tier one vendors will increasingly have much to smile about.