When it comes choosing data center ITAD services, it’s important to work with an IT asset disposition company that is experienced in the data center. Especially for the entire IT asset recovery and decommissioning process in the data center, for a myriad of reasons we’ve explained throughout this blog series.
ITAD remarketing is a critical component of the data center decommissioning process. This is because the proceeds from the sale of decommissioned data center IT equipment are typically used to offset data security and asset processing costs. But remarketing data center IT equipment requires a different strategy than remarketing corporate IT assets like laptops and tablets, as I explained in my previous blog.
The next important piece to understand is how the law of supply and demand in data center remarketing is different than traditional remarketing of corporate IT assets.
Laws of Supply and Demand in Data Center ITAD Remarketing
The illustration below depicts the two different buyer groups for corporate IT and data center IT. Each triangle represents the cumulative number of buyers for that segment – with the ITAD company at the bottom. As you move up the arrow, the buyer group for the consumer assets gets larger while the buyer group for the data center assets gets smaller.
No matter what you’re selling, the closer you move to the end user the more direct revenue you will generate from the sale. You’ve probably heard the phrase “cutting out the middleman.” For corporate IT, it’s much easier to sell directly to an end user because every consumer is considered an end user. There are also many established ecommerce platforms that exist to reach those buyers, such as eBay and Amazon.
Remarketing data center IT equipment is much more challenging, especially if you are remarketing extremely high volumes of IT assets as we do at ITRenew. The total number of end user buyers for data center IT equipment is much smaller. The buyers at the very tip of the triangle are about as abundant as four-leaf clovers. That means if you are selling 100,000 memory DIMMS, for example, there are very few end users who will purchase the entire inventory lot at that volume.
Therefore, ITAD companies that are not experienced in data center decommissioning may utilize a broker channel, which leads to the next problem: “phantom inventory.” This occurs when product lists are broadcasted to the secondary market through email or online services such as Brokerbin and Tradeloop. Rarely are the products in the broadcast lists owned by the broadcasters, which creates a perceived, albeit fake, oversupply in the market. Therefore, broadcasting lists through a broker channel reduces the demand and subsequent price for the product.
In the consumer IT market, it’s impossible to create an oversupply because that would mean every consumer in the world:
- Already owns at least one laptop, cell phone, and/or tablet, and
- Is satisfied with each of these devices and isn’t looking to upgrade or buy another product.
So then, how does demand play a factor in the respective ITAD remarketing segments? Demand in the consumer IT market will, comparatively, remain high because there are far more consumers than the supply of corporate IT assets will ever satisfy. Furthermore, most consumers will only need one laptop, phone, and tablet. If an ITAD company is remarketing tens, hundreds, or thousands of these corporate IT devices, the consumer will be indifferent as they will only be consuming a single device anyways.
On the other hand, because the buyer group for high volumes of largely homogenous data center IT assets is so much smaller, the market volatility resembles that of the stock market during economic uncertainty. Remarketing 5,000, 10,000, 50,000, or 100,000 of the same components all at one time will have a huge effect on the price of those components. The price will be especially affected if IT hardware is not marketed correctly to the right end users. It’s important to remember there’s no Kelley Blue Book equivalent for data center equipment or a directory of the who’s who in ITAD remarketing. This knowledge comes from years of experience and network building – something that cannot be replicated over a short period of time. So, beware. If you’re using an ITAD company that specializes in corporate IT, they may be using a broker model to sell your equipment or may be unfamiliar with the supply and demand principles in data center that dictate your Total Return success.
Recap: Data Center ITAD Supply and Demand
- Data center IT assets are worth between 10 times and 100 times that of corporate IT assets.
- Data center IT assets should not be remarketed on ecommerce sites such as eBay or Amazon if you want to maximize value recovery.
- The data center buyer group is significantly smaller than the consumer buyer group.
- Volume plays a significant role when selling data center IT assets.
- To whom and how an ITAD company sells data center IT equipment affects the Total Return ROI.
- Understanding the ITAD remarketing ecosystem for data center IT assets takes years and is not easily duplicated.
Buyer Beware: Games within the Game of IT Asset Consignment and Remarketing
In their Magic Quadrant for IT Asset Disposition Worldwide, Gartner says there are two important variables to the remarketing equation:
- Consignment share, which is the percentage of the remarketing sale price the ITAD vendor will return to the customer. Gartner says remarketing consignment share is typically 60-70%.
- Net proceeds, which is the amount left after ITAD service costs and processing fees are deducted from the gross resale revenues.
Gartner cautions: “We have seen many cases where 60% of fair net proceeds is actually higher than 70% of an unjustifiable low net—buyer beware!” What this simply means is that one ITAD service provider may offer 70% of the gross revenue from resale, but actually deliver less net proceeds than another vendor that only offers 60% consignment share.
This is something we call “inflated valuations.” Time and time again we see over-inflated valuations of decommissioned IT equipment because an ITAD company is trying to buy the customer’s business. Some ITAD companies will submit a hardware valuation estimate that is 10% higher than everyone else. But once all costs are factored in, the net result return on that data center hardware is lower. This will happen for a number of reasons, if:
- The vendor’s service fees are higher than normal.
- Hidden decommissioning service fees or logistics charges are being applied.
- The ITAD vendor’s data security process requires the use of expensive secure logistics, because they cannot efficiently erase data onsite in your data center.
- The ITAD vendor’s data erasure process results in many hard drives being destroyed, because their data erasure yields are insufficiently low.
- They simply lack the data center ITAD remarketing expertise to sell the maximum amount of IT equipment, to the right buyers, and at the highest price.
All of which is necessary to deliver the greatest Total Return ROI.
In the third and final installment of this ITAD remarketing blog, I will provide best practice recommendations to help you master data center ITAD remarketing and maximize the Total Return ROI on decommissioned assets.