White box manufacturers are dominating the Australian PC scene, securing a third of units shipped and a quarter of revenue generated, according to the first ever report on the white box market by analyst International Data Corp (IDC).
The report, titled Study of the white box market in Australia encompassed "third- and fourth-tier" clone assemblers who also act as distributors and resellers, or the "other" group, as IDC refers to them. It did not include larger white box manufacturers such as Ipex, Optima and Total Peripherals Group.
Over 604,000 white box units were shipped in 1998 at a value of $1.25 million, with Bernie Esner, senior consultant at IDC and author of the report, expecting that figure to grow to 760,000 in 2000.
However, while units shipped will increase, the white box market will slow its growth from 13.5 per cent in 1999 to around 10.8 per cent in 2000.
Over 67 per cent of these products were sent into the white box stronghold, namely small business, small office and the home markets, Esner said.
"In our recent survey of Australian clone assemblers, 43.8 per cent of those interviewed employed less than seven people. What you have are small businesses selling to other small businesses."
It is this empathy that Esner believes will perpetuate clone assemblers' supremacy in their traditional markets, along with competitive pricing, customisation and personal service.
"Small businesses might not have the resources of multinationals but what they do have is mobility and proximity. The ma and pa store knows what its customers want, maybe even better than under the Dell model."
Esner believes these are traits that branded vendors will find difficult to emulate and consequently predicts that multinationals such as Compaq will find it difficult to move into the lucrative white box market independent of existing clone assemblers.
"One of the recommendations I am making to the international guys who want to get into this market is to embrace the white box players," said Esner, who apart from hinting at a general consolidation of the white box segment would not reveal any details of the strategy he was advising big name vendors on.
Yet Esner believes white box assemblers are increasing their own power and are now "a force to be reckoned with".
Esner expects that the current disharmony in vendor channel strategies will prove advantageous to clone manufacturers as they gain recognition while tier-one vendors squabble for market share.
Consequently, companies like Compaq will have to change their "whole mindset" if they want to jump into the potentially lucrative small business space. In fact, IDC estimates that of the approximately one million small businesses in australia, about 30 per cent of them are yet to even purchase a computer. That makes for a lot of growth, said Esner.
White box assemblers have a distinct advantage over their larger competitors because they needed to carry only an inventory of components rather than whole units. This inevitably leads to a faster inventory and cash turnover. And the components are of a high quality, according to Esner.
Lower overheads also contribute to the assembler's advantageous position, even if they are forced to exist on low margins. Yet the margins generated by merely moving boxes are not underpinning the success of white box manufacturers, added Esner.
Instead, it is the provision of services such as software installation, network installation and training that is proving more lucrative for the clone assembler.
"Customers know that if they have service problems, they can deal with someone nearby. Delivery of PCs is often quicker."