SECOND-HAND PCS: They’re In, But Are You?

The low-cost, average life, adequate applications and sales-support of these machines, has made this segment a very attractive business proposition. Partners now need to convince users that these computers have a price-advantage, and can also meet older versions of technology.

Until recently, many partners looked at the second-hand PC business with a demeaning attitude. But with a business potential of over Rs 300 crore, the scenario is fast changing. While there are only a few who dedicatedly deal in this segment, many are expected to join the fray. 

There are several reasons for this shift. The business landscape is far less competitive than run-of-the-mill reselling, margins are attractive, service propositions are high, and above all, there is a vast untapped market in the B and C-class cities as well as rural areas. 

Consider these few facts:

• As of today, India has an installed PC base of over 8 million and is expected to touch 10 million (1 crore) units by next year 
• By 2003, the PC penetration will reach close to 2% 
• Over 80% of the installed PCs are present in the business segment 
• Average life-cycle of PCs in business segment is between two-three years 
• Most of the business PCs are upgraded at least once in their life-cycle 
• 30-40% of businesses prefer to lease PCs than outright purchase, a trend that is increasingly getting prominent 

To many these may look like just another piece of market statistics. However, there are a few partners who have been able to sight latent opportunities beneath these figures. These are the people who have seen the cut-throat competition in the routine PC and peripheral business and have decided to stay away from it.

With profit margins going as low as Rs 300-500 over a PC costing Rs 30,000, many in the industry have started to find a comfortable niche for themselves. More and more partners are today offering solutions, services, selling high-value niche products or even combination of all of these instead of mere box-pushing. 

Interestingly, there are partners who are actively looking at the secondary market, which implies replacement, upgradation and second-hand PC business. 

While this market largely remains an unorganized sector, it is estimated that there are at least 75-100 dedicated players across the country carrying out the above mentioned business. 

GAUGING THE MARKET 



Delving deeper into the secondary market, we need to re-look at some statistics mentioned in the very beginning. 

The installed PC base to reach 10 million by 2004: The fact remains that nearly 99 out of every 100 persons is yet to own a PC in the country. Also, price of a computer still continues to be the biggest factor for PC penetration level. And hence, people prefer second-hand PCs which gives rise to a huge opportunity for this business. 

While these PCs may not come with the same technology and performance levels of currently selling models, they are more than capable of addressing most of the needs of an average user. 

There are four key applications that majority of the users run: word-processing, e-mail, internet surfing and to some extent spreadsheets or presentation designing, which can be well used on a second-hand PC.

Further, considering that these PCs can be bought at a price anywhere between Rs 5,000 and Rs 15,000, the mass appeal factor becomes truly amplified. 

Average life-cycle of a PC in business segment is two-three years: Nearly 80% of the PCs installed are in the business segment. On an average, a computer purchased by a business user gets replaced by a new one after three years. In cases, where it isn’t replaced, PC components get upgraded. 

However, verticals like IT, telecom, banking and finance, where criticality of IT infrastructure is very high, PCs get phased out in three years. It is here that the technology obsolescence factor essentially acts as the driver for second-hand PC market.

Many vendors as well as SIs give buy-back offers on brand new PC supplies they make. In the meanwhile, they also scout for buyers for the phased out PCs.

Market sources indicate that over two years, large volumes of second-hand PCs will find its way in the open market. And, this will mark the beginning of a trend. 

AN OPPORTUNITY UNNOTICED 



To estimate how many second-hand PCs might hit the market over next two years, lets do some number crunching. Nearly 30 lakh PCs were purchased in the 1999-2001, out of which, about 24 lakh units can be expected to have gone in the business segment. 

Let’s assume that 30% of users will continue using the PC in its initial configuration, while another 30% may have opted or will opt for

upgradation. 

Also, consider that nearly 10% of the PCs would have become non-functional and another 10% of PCs might have been donated to NGOs, schools and even given away to the organization’s employees. 

This leaves us with nearly 20% PCs in good working condition, which the users would want to dispose. So, roughly about 5 lakh PC units that would be up for sale. However, in the absence of an organized disposal mechanism and ignorance about the potential usage of these machines, many of the PCs might end up in scrap.

Says Alan van Niekerk, CEO, Rentworks India, a company offering IT rental solutions, “The cost of disposal itself acts as a big deterrent to organizations wanting to do away with their outdated machines. If only we can see the evolution of a proper channel that would take care of the buying and selling of these PCs, situations can take a dramatic change.” 

For the channel, the size of this opportunity is to the tune of over Rs 300 crore. While some partners may have started to seriously consider ways to tap this opportunity, on the higher side, one doesn’t see any partner doing more than Rs 1 to 1.5 crore business in this segment. 

CHANGING FACE OF SECOND-HANDS



Though many players have completely ventured into this business, they are struggling to create a distinct brand identity and awareness for themselves.

Currently, by and large, their image treads between that of a ‘kabadiwalah’ and a sub-standard PC supplier. However, this seems to be gradually changing. 

One is now seeing prominent advertisements in leading dailies about these companies. There are few who have web sites dedicated to second-hand PC purchases, and there are some who have adopted a far more pro-active strategy by participating in major exhibitions and opening offices in geographies outside their base location.

One such company is Mumbai-based Jitubhai Joone Computer Wale. As the name itself suggests, the company is completely into the second-hand game. Its

proprietor, Jitubhai Patel, manages his business from two offices in Mumbai and a recently opened office in

Surat. 

His business strategy is that he buys the PCs largely from users in metros, rigorously tests its individual components and replaces the defective ones with new or old-but-fine components. Then he does touch-up work on the PC’s exterior to make it look like a new model, after which, he finds a buyer for the machine in a small town or village. 

HOW IT WORKS?



“In metros like Mumbai, where people have high spending power, they want to own the latest machines, and so act as a feeding source for our second-hand business. However, in upcountry markets and rural areas, where a PC still is a novelty, a second-hand draws a great appeal,” remarks

Jitubhai. 

While declining to comment on the exact volume of business, he does indicate an annual sale of over 1,000 machines.

“Margins vary from deal-to-deal, though it is far more satisfactory from what exists in the brand-new PC business,” reveals he.

Santosh Kotia of Used Compushop, agrees with Jitubhai. “Since the competition here is not as intense as it is in the routine channel business, we can sell low-volumes, and yet be happy about our bottomlines, says he. Santosh has also put up an active web site, usedcompushop.com, which offers prospective buyers a complete guide to the company’s inventories or products. 

Santosh’s company also liquidates products, which do not sell in the primary market. “We sell new box-packs of old versions of software. Some of our buyers prefer to have the old-but-original versions and upgrade it to a newer version by paying a charge, if needed,” informs he. Used Compushop works with SIs, solution providers and end-users to help them dispose off their used or surplus products while providing encashment for buy-back.

However, he also adds that with most of the dealers/SIs too trying to cash on the second-hand business, his company is now gradually shifting focus on notebooks. “We feel second-hand desktops will shortly become a highly-traded product, and so we want to concentrate more on notebooks, which has relatively better margin potentials,” adds

Santosh.

The second-hand business potential has attracted even big-time resellers like Pacific Infotech and SIs like Allied Digital, Astech Infotech. Pacific reportedly sells, on an average, 10 second-hand notebooks a month. “These notebooks get sold in Rs 20,000 to 30,000 price-range,” informs Kishore Jeswani, Director, Pacific

Infotech.

WARRANTY: THE WINNING EDGE



Anyone trying to rubbish the entire second-hand business model may be in for a good surprise. The players in this segment offer warranty too! Though warranty periods range from a week to a month, most of the partners offer after-sales support.

“Products are sold after a stringent quality test lasting for three days. In case something goes wrong after the one-month warranty period, the defective component can be replaced at a very low-cost,” explains Jitubhai. He reasons out that though all second-hand units may not perform as long as new ones, the idea is to reduce cost of ownership drastically. 



This gels fine with users whose needs are very limited and non-critical. The bigger picture here is that a middle- or lower-income class individual too can afford a PC; so what if it’s a second-hand. And when combined with a reliable post-sales service assurance from the selling partner, buyers can be made comfortable to go for that second-hand PIII 550 MHz with about 10 GB hardisk, 64 MB RAM and a 14" color monitor. And all this for just Rs 10,000 to 12,000. 

THINGS TO REMEMBER



Those partners who are already into this business or are looking to venture into it must remember one thing. To the end-user what matters most is not the name of a technology (P4, PIII or PII or whatever). What matters to him is what all can he do with a particular technology, and to what extent his seller will support him in case something goes wrong with the machine. 

While many may argue that the desire to own the latest is very strong among users, it is exactly here the groundwork begins for sellers. Partners need to convince users as to how their requirements can be met efficiently by even older version of technology. They must highlight the price-advantage versus usefulness index of a second-hand PC to the end-user. 

Most importantly, partners should remember that the second-hand PC business cannot be treated in a second-hand manner.

The efforts and genuninity has to be similar or more than when dealing in brand-new machines. In the end, it’s all about meeting the expectations of your customers and if you can do that with second-hand PCs, the sky of opportunity is just opening up for you. Are you ready to catch this flight?

GOLDIE in Mumbai

SECOND-HAND BAZAAR: WHERE TO BUY

Corporates: Track the corporates, big and small. They dispose of a good percentage of their machines every three years or so. They offer good opportunity for providing upgradations as well. High obsolescence rate hence good selling potential in IT companies.

Government: PC life-cycle in this segment is slightly higher but when they sell, it is in huge numbers. They use the tender route. Frequent such information available on web sites like tendercity.com

Hardcore mobile professionals: Chances that he would want to junk his three-year old notebook for a newer sleeker version. If you sell to them, they are the right prospects to buy from as well.

Vendors: They offer buy-backs on large deals. Constantly look for buyers for the disposed units. Generally leverage support from their SI partners.

Large solution providers: By virtue of handling big enterprise/government accounts, have a constant inflow of second-hand machines. 

IT rental companies: Entities like RentWorks rent out the machines in large numbers. At the end of lease period (generally three or five years) look for re-deployment or sell-off.

Customs: Visit custom warehouses and chances are you will find huge quantities of new IT products gathering dust there. Participate in their auction or even do an over-the-table deal.

Imports: Import of second-hand goods is still illegal in the country. However, there are few players who have found ways to do it.