Remarketing is a relatively new term, but one of the critical functions of IT asset disposition. According to Gartner’s Magic Quadrant for ITAD Worldwide, in which ITRenew is recognized as a Visionary, “Remarketing/resale is the main source of revenue for most organizations and many ITAD vendors. Indeed, it is the critical denominator in the core ITAD cost-benefit equation, and often determines whether the vendor writes the client a check or an invoice.”

As the Director of Enterprise Sales & Procurement at ITRenew, that certainly makes me feel good about the role my team plays in our overall value delivery to customers. But there are a two potentially troubling thoughts in this narrative:

  • Your equipment may be the primary source of revenue for your vendor
  • Remarketing may determine whether they write you a check (because they made money) or send you an invoice (because they did not)

If you’ve been following our blog series to date, you may already know why I say this. As our VP of Corporate Strategy points out in the introductory blog: as a privately owned company, ITRenew is immune to the external pressures and can hold out to get top dollar for your equipment. But if your vendor answers to investors or your equipment is their primary source of revenue, what happens when financial statements or operating bills come due? Fire sale!

Plus, in Part 2. Yield: The Silent Value Killer, we make the case that yield has the greatest potential impact on “Total Return.” In remarketing terms, it means if we increase your yield 40% by using Teraware, we can resell 40% more of your drives!

If you haven’t been following, let me quickly catch you up. Total Return is a methodology for measuring the actual overall performance of your data center decommissioning. In our blog series, we are examining five key areas of Total Return impact, including remarketing. In this installment, I will help you understand how remarketing works and the gamesmanship that goes on—both between vendors and customers and within the secondary market. I will also demonstrate how, for the organizations that do it right, remarketing can be a competitive advantage.

Why You Should Care
Believe it or not, the secondary IT equipment market is huge; estimated to be worth upwards of $1B. It’s not a large number of consumer type products—laptops, desktops, tablets and phones—that make up this market, but rather data center assets. Think about it; every corporation in the world needs enterprise-class IT to run. Whether it’s as simple as a single switch and server or as complicated as the data centers that run AWS, Facebook, Azure and Google, the fact remains that without IT there would be no corporation. But, even with all the corporate demand for IT, relatively few firms have the budget to purchase new, preferring to instead purchase second-hand pre-qualified gear at a fraction of the price. By leveraging this secondary market and defining go-to-market strategies for decommissioned equipment, annual revenues can be north of $50M for those top-tier data center companies; $10M and $5M for the tier 2 and tier 3 companies, respectively. Let’s also not forget about the added environmental stewardship that comes along with reusing versus recycling.

Standard Remarketing Models
In the remarketing world, there are two typical models utilized: (1) Bid/Buyout, and (2) Profit Share/Consignment. There are pros and cons to each model and the most important ones are detailed below:

Profit Share/Consignment Model

Pros

Cons

  • Maximize Revenue
  • Constant control of  supply and liablility
  • Maintain governance  preremarketing
  • More laborsome
  • Slower completed  transaction cycle
  • Accounting obstacles

Bid/Buyout Model

Pros

Cons

  • Cleaner accounting
  • Faster complete transaction
  • No additional recourse post ship
  • Significantly less revenue
  • Lose traceablility and liability control
  • Don’t control economic supply

Which model you ultimately choose depends on your weighted preferences. Some prefer a quick transaction that requires minimal effort while others will choose to put in more effort and reap significantly higher revenues.

Buyer Beware: Games within the Game
In the Magic Quadrant, Gartner says the consignment share (typically 60-70%, it reports) is only one of two important variables to the remarketing equation. The other is “net proceeds,” where costs and fees are deducted from the gross resale proceeds. 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!”

This is something we call “inflated valuations.” When deciding among vendors during the RFI/RFQ process beware of the equipment valuation prices submitted. Time and time again we see over-inflated valuations because the ITAD vendor wants to submit the highest price. From the outside this looks highly attractive, sometimes 10% higher estimates than other vendors. Yet, after factoring in associated costs, net proceeds result in far less actual return.

The second game is unfortunately used quite extensively, especially by ITAD vendors that utilize a broadcast or broker-rich remarketing network. Because rules of economics are leveraged extensively in the remarketing world to understand how supply and demand react towards one another, they can also be used to artificially gain leverage. Broadcasts can be used to create a speculative market—one in which assumes a high volume of supply or demand when in reality there isn’t one. In either case, prices tend to be driven down in one of two ways: (1) if the broadcasts are creating an artificial amount of demand, brokers begin competing to win the sale—typically driving the price down; (2) if the broadcasts are creating an artificial amount of supply, companies holding the same product begin liquidating their stock in an effort to exit the market and lower their inventory costs and risk.

Mastering the Game: Best Policies to Implement
Here are a few best practices to come out ahead in the remarketing game:

  • IMPLEMENT the profit share model. Why? Few, if any, reputable companies in the industry will take on the full liability that’s associated with the bid model, therefore decreasing their bid upwards of 70% to allot for the added liability. Since many remarketing products are subject to commodity constraints, meaning their price fluctuates based on supply and demand, prices fluctuate daily as if it were its own stock market. This fluctuation materializes itself as liability, and one wrong move can spell disaster for us service providers.
  • NEVER UTILIZE a dual-vendor approach with the same products. This creates a “race to the bottom,” lose-lose competition scenario between the two vendors, and, ultimately, a loss in revenue and control of the economic supply for the service-seeker. I’m not suggesting using one vendor who has all-product exclusivity; instead, if using multiple vendors, parse out exclusivity for specific product categories. This allows each vendor to go-to-market at optimal times rather than compete with one another, which drives the price down.
  • QUESTION your current vendor(s) and prospective vendor(s) remarketing strategy. You’re looking for expertise in the remarketing arena which means a demonstrated mastery of geographic demand, channel optimization and maximizing value out of scrap equipment, which leads me to the next important policy…
  • …VERIFY you’re receiving financial compensation for the internal components of assets that are being recycled. We call this the “forgotten revenue.” Just because the server itself has no remarketing value doesn’t mean the memory, power supplies, RAID controllers and PCI-X cards don’t. In the event a server is recycled, verify the internal components are part of the profit-sharing model.
  • DEMAND full traceability on all products throughout the decomm lifecycle. If your current or prospective vendor(s) cannot tell you the final disposition status including the date, method, price and downstream supplier (if necessary), then they are not in control of the entire lifecycle and are increasing the risk and liability to your company. It is essential the service provider has a widely-adopted, preferably single operations and sales platform to track and report on your assets, ensuring each piece of equipment is accounted for and processed appropriately.

In the end, should you care about your ITAD vendor’s remarketing success? Absolutely. There’s revenue and value out there to capture, so why not capture it? If you are eager enough, stick to the five policies outlined in this series and within time hopefully you’ll have mastered the game.

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