"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.”
 |
| 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.
-1.jpg&w=100&c=1&s=0)
.png&w=100&c=1&s=0)
