Nimble Marketing Helps White-Box Builders

Things are looking up in the PC market. Research firm Gartner reported this spring that worldwide computer shipments will jump more than 13 percent this year while forecasting that nearly 100 million PCs will be replaced. Even better, Merrill Lynch issued a report earlier this year that showed systems builders worldwide have increased their market share in the PC business, with customers citing low cost, customization and local support as the primary drawing cards for white boxes.

"I see more people leaning toward white boxes, especially in the SMB space," says Bill Hook, president of Keystone Computer, based in DuBois, Pa. "They want to deal with a local company that can offer them true support and customization."

But for systems builders to continue that growth and keep up with brand-name vendors, they'll have to tackle a few obstacles first. The problem, according to many white-box makers, revolves around marketing. The premise is a major PC manufacturer has marketing power, and a local systems builder doesn't. As end users get bombarded by special offers and discounts for low-cost machines from Dell, Hewlett-Packard and Gateway, systems builders fight an uphill battle.

"The mentality of today's buyers is twisted by advertising by the big corporations," says Jim Crews, president of Swifteagle, a solution provider based in Harrisburg, Pa. "My systems have superior quality, and while you'll pay more for them, they're worth it in the long run."

Thus, systems builders must sell customers on the idea that paying more up front for a longer-lasting, more reliable machine with a higher level of support is worth the effort. That's not always an easy task. Solution providers insist that, compared with a basic, bargain PC, white boxes are better all-around systems with higher-quality manufacturing and parts, reliable technical support and longevity that most brand-name vendors can't match."My customers keep their boxes for five years or more, so they don't have to buy three Dell PCs in that time span," says Tim Scheidler, owner of Halifax, Pa.-based NAS Computer Services. "When you compare our systems to, say, Dell PCs over a five-year period, we beat them in value."

Therefore, solution providers like Scheidler are taking a more sophisticated ROI message to customers, imparting to businesses that they'll get more value for their money with a custom machine. Still, systems builders acknowledge that, in fact, many people don't mind buying a cheap PC that will be replaced every 18 months to 24 months.

"A lot of customers are, unfortunately, OK with buying a new system every year because they want the latest-and-greatest model," Scheidler says. "It's like the McDonald's mentality--people want it fast and cheap."

As a result, white-box makers are taking a more targeted approach and mining customers that appreciate high standards and more advanced technologies. But can systems builders make any progress in the enterprise market? Perhaps not with the world's largest corporations, although white-box makers are finding customers that may not be true enterprises by definition have enterprise-computing needs and are seeking advanced desktops, workstations and servers. A number of white-box makers have jumped on emerging technologies, such as AMD's new Opteron 64-bit processor and open-source software, like Linux, to attract larger customers seeking high-end, advanced solutions.

For example, Lowell, Mass.-based New Technology Solutions (NTSI) has been successfully providing 64-bit Opteron-based machines to clients with high-end computing needs. The systems builder recently delivered more than 50 Opteron-based workstations to a major manufacturing client for engineering tasks."We are selling the AMD 64-bit machines to a wide range of customers. One common thread is the need for high performance and the desire to run 64-bit applications soon," says Shawn Harty, president of NTSI. "Most of these people are running CAD/CAM, engineering or visualization applications."

Pogo Linux, which also uses the Opteron chip, is another systems builder that has made a drastic shift. The company, based in Redmond, Wash., got its start in 1999 building low-cost Linux-based PCs, but eventually migrated to building advanced workstations, servers, database appliances and even Serial ATA storage systems. The shift resulted in a booming business for Pogo Linux.

It's possible, white-box makers say, that increasing inroads will be made into larger corporations with the addition of more advanced technologies, such as 64-bit computing, and more complex applications for open-source software. If so, systems builders will continue to make their presence felt in computer market-share studies.