Next time you’re looking for an accessory to boost your sales to a customer, head to www.galleryserpentine.com.au. You won’t find any conventional point-of-sale goodies, but you will encounter a striking range of PVC coats that look like they are straight out of The Matrix.
There are also some rather extraordinary corsets, available in either “overbust” or “underbust” styles. And don’t ignore the “Gothic Lolita Victoriana”, a line that will certainly get your hard drive spinning.
But before you dismiss these items as an unlooked-for insight into the odd things CRN writers get up to on the weekend, type another web address into your browser: www.overclockers.com.au.
The site is the self-proclaimed online home of Australia’s builders of bespoke PCs and exotic cases (“modders”), PC enthusiasts that tweak CPUs’ clockspeeds to increase their performance (“overclockers”) and their games-freak brethren who like nothing more than to build the fastest and coolest-looking PCs imaginable and then equip them with all manner of accessories in pursuit of the perfect score.
Many of the people who perpetrate these acts on their PCs also like to dress up in the kind of clothing offered by Gallery Serpentine, which sponsors overclockers.com.au. And the link between the two is instructive: modders, gamers and overclockers are far from usual computer customers.
Francis Lim, business development manager at cooling systems vendor Thermaltake Australia, says the groups are best understood as a digital manifestation of car enthusiasts.
Lim says that 20 years ago, “people modified their cars to make them look good on the road; now they mod their computers so when their friends come over or they go to a LAN party they look different”.
And just as the youth of yesteryear built entire identities around their cars, modders and overclockers make similar emotional investments in their PCs.
“This is not a hobby,” says Ashton Mills, the editor of Atomic magazine. “This is a lifestyle choice. Computers and technology is all these people think about. It is very much a culture.”
Atomic, a sister publication of CRN, caters for this culture with reviews of the latest in hardware and software, plus a section called “Culture Shock” in which the magazine reviews the films, books and other cultural artefacts that come with the technologically-oriented lifestyle its readers have embarked upon.
“The number one priority to be able to reach this kind of audience is to realise how they think," Mills says, offering the oft-lampooned television show MacGyver as a way to understand their proclivities.”
“MacGyver beats the bad guys using his mind,” Mills says. “He didn’t win through force like they do in sport.”
“Our readers are passionate about technology. If you can be as passionate about technology as they are, you can sell to them. If they find someone as passionate and geeky as they are, they will trust it.”
And it is worth seeking that trust. While no data exists to describe the size of these communities, there is no doubt they are significant. LAN parties, events at which organisers assemble a temporary local area network for multiplayer gaming, regularly attract hundreds of players and a similar numbers of spectators.
On any given weekend it is likely there will be at least one such party in each capital city around Australia and these events are prime sales and marketing opportunities for resellers that address these markets, as they offer a chance to engage with customers in numbers that may have eluded precise quantification, but impress market-watchers nonetheless.
"It is close to impossible to put a size to a market whose definitions are so loose," says Michael Sager, IDC Australia’s senior analyst for PC hardware. "However, it can be said that this is one of the most critical market segments to IT vendors and resellers. They are the early adopters of technology and help to increase demand for high end technology that eventually becomes mainstream.
“In terms of unit shipments they are most certainly more than a blip, and in terms of significance to the market they are much more that. The audience that is cutting edge allows new platforms to come to market sooner and the products they are buying have much healthier margins than your ‘bang for buck’ CPUs, hard drives, RAM et cetera.”
They also buy often. “It is a market that upgrades very frequently,” says Louis Mittoni, owner of a reseller that bears his surname. "They probably upgrade one component or another every three months. They’ll get a new DVD one month, upgrade RAM the next, then maybe buy a second graphics card.
“They buy and sell very frequently to allow upgrades, which makes it a very active market. It’s not the typical customer who buys a PC and holds onto it for three years,” Mittoni says.
Rick Williams, general manager of PC Mods Australia, has similar experiences. “It is not unusual to get the same customer coming back every three or four weeks,” he says. “They get addicted. And they’re not afraid to spend quite a few dollars on it either.”
Margin madness?
“They are, however, very concerned to pay only the lowest price for their dream parts. "People will go to 20 search engines for component pricing,” says Nigel Fernandes, managing director of Plus Corporation. It is the youth and low incomes of many modders that drives them to search for the lowest price possible, a quest that means even the newest products sometimes cannot deliver the high margins, IDC’s Sager notes.
“We start with low margins on new release products so there is not too much of a difference for the end user when the product arrives in volume and the price falls,” Mittoni says. “You see the negative comments on the online forums when they see prices dive,” and it is worth forgoing high margins to avoid negative commentary and secure volume business in the future.
“You don’t want to punish early adopters. For long-term customer comfort it is important to keep the price consistent,” Mittoni adds.
Yet even this kind of behaviour may not engender customer loyalty, as customers’ relentless price comparisons erode the likelihood of repeat business. Changing technology also makes loyalty less likely. Vendors leapfrog each other and customers follow performance, not brands.
Resellers could find some relief in the fact that high margins may sometimes be on offer from those who 'lack the expertise' to assemble or pick all their own components. “Complete systems with a couple of graphics cards can offer quite a good margin, especially once you add a 19-inch TFT monitor,” Mittoni says.
Cutthroat competition
Yet the need for keen component prices to attract the more technical buyers sparks all sorts of interesting tactics. “A lot of resellers put pressure on price and go to tier 2, tier 3 or tier 4 distributors who eventually come up with very good prices,” Fernandes says. “We would like to think customers should be happy to spend a bit more on a known company to make sure their $1000 video card actually gets delivered.”
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| Thermaltake's Lim: Geeks - the digital manifestation of car enthusiasts |
“A lot of online retailers import themselves, which is tricky,” Williams says. “Then they can sell at crazy prices.”
The result is a market in which lines can blur between distributors and resellers, as each seeks margin. PC Mods Australia, for example, is owned by distributor Electronic Accessories Australia.
“We were one of the first PC modding distributors," Williams says. “A lot of people caught on very fast. But it is a very tricky market. A lot of general retailers do not stock this sort of product. That is why we had to go retail ourselves. When we first started importing we were successful in the chains, but then it really slowed down.”
This is a trend borne out by CRN’s own enquiries. Dick Smith Electronics took modding mainstream by stocking case accessories in its stores in 2004. At the time of writing, however, the company had not returned our calls to comment on the state of the market and the success or otherwise of its efforts.Another sore point among resellers that cater for these communities is inventory management. The audience for these products is sizeable enough and active enough to warrant attention, yet their embrace of a digital lifestyle means they are also avid internet shoppers who will happily surf for hours on end to research a particular product they feel may make a difference to their machine.
The result is extraordinarily well-educated customers who know almost to the day when products should be on sale and have low tolerance for supply chain failures.
Vendors manage this demand using stealth tactics. “Ideally, you want products in stock the day publicity starts,” Thermaltake’s Lim says.
“But it takes about six weeks to get our products into Australia, so we aim to ensure that branch offices get the product six weeks before marketing activities commence. It is nice to have the products here before their existence becomes known on the web.”
Yet for resellers, this is a double-edge sword. Satisfying early demand can, as Mittoni says, mean low margins. But such is the pace of release that any excess inventory means almost certain red ink.
“We keep very low inventory,” Plus Corporation’s Fernandes says. “We assume products are about to be obsolete and are always busily unloading the old and getting orders for the new.”
Close relationships with vendors to secure knowledge of new releases and sample units is therefore critical, as early online marketing drives buyers to resellers they perceive as being the best source for new products.
“The enthusiasts do a lot of research,” Mittoni says. “They do searches worldwide and discuss the products online. They will not go to Harvey Norman and see what they have got. At the very least you need to keep your website up to date in advance of a product’s release. You need information on new releases.” That information can be gleaned through close vendor contact, a practice Mittoni maintains with occasional trips to trade shows in Taiwan -- most vendors in this space originate on the island -- to preview new products.
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| Plus' Fernandes: Low incomes drive modders to search for low prices |
But even that early access may not win buyers. Shoppers for the specialised products favoured by modders, gamers and overclockers glean information from OCAU and a global collection of similar websites that review products in extraordinary detail, usually offering thousands of words that examine every aspect of its operations.
The site arstechnica.com, for example, reviewed Apple’s iPod nano within days of its release (see http://arstechnica.com/reviews/ hardware/nano.ars/ for details) and gleefully subjected the machine to tests designed to destroy it that included running it over with a car to test its resilience.
Once the car had successfully destroyed the music player (which survived a surprisingly long time), the review literally dissected the machine and, as is typical for reviews that cater for this community, featured many large images of the machine’s innards.
This forensic interest in components is yet another indicator of the different motivations that drive these buyers’ behaviour.
It is also an indicator that these customers are likely to be more work than many others. Few buyers of conventional PC equipment are likely to have any interest in the model number of Toshiba’s flash memory or the differences between touch wheels in convention iPods and the nano, yet both topics were deemed worthy of attention in Ars Technica’s review.
But perhaps that is also part of the fun and challenge of working in this most peculiar of PC markets.
“I think what attracted us to it is that this is a very exciting market because it offers exciting products that are out of the ordinary,” Mittoni says.
“The customers are quite niche as well. They are very specific in terms of what they want, which gives us an opportunity to deal with the cutting edge type of technology.”
“In terms of just selling computer gear, this is far more interesting than dealing with standard products.”
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