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Used IT Equipment Can Be Worth a Fortune (Video) 79

Posted by Roblimo
from the how-much-is-that-mainframe-in-the-window? dept.
This is a conversation with Frank Muscarello, CEO and co-founder of MarkiTx, a company that brokers used and rehabbed IT equipment. We're not talking about an iPhone 3 you might sell on craigslist, but enterprise-level items. Cisco. Oracle. IBM mainframes. Racks full of HP or Dell servers. That kind of thing. In 2013 IDC pegged the value of the used IT equipment market at $70 billion, so this is a substantial business. MarkiTx has three main bullet points: *Know what your gear is worth; *Sell with ease at a fair price; and *Buy reliable, refurbished gear. Pricing is the big deal, Frank says. With cars you have Cars.com and Kelley Blue Book. There are similar pricing services for commercial trucks, construction equipment, and nearly anything else a business or government agency might buy or sell used. For computers? Not so much. Worth Monkey calls itself "The blue book for used electronics and more," but it only seems to list popular consumer equipment. I tried looking up several popular Dell PowerEdge servers. No joy. An HTC Sensation phone or an Acer Aspire notebook? Sure. With price ranges based on condition, same as Kelley Blue Book does with cars. Now back to the big iron. A New York bank wants to buy new servers. Their old ones are fully depreciated in the tax sense, and their CTO can show stats saying they are going to suffer from decreasing reliability. So they send out for bids on new hardware. Meanwhile, there's a bank in Goa, India, that is building a server farm on a tight budget. If they can buy used servers from the New York bank, rehabbed and with a warranty, for one-third what they'd cost new, they are going to jump on this deal the same way a small earthmoving operation buys used dump trucks a multinational construction company no longer wants.

In February, 2013 Computerworld ran an article titled A new way to sell used IT equipment about MarkiTx. The main differentiator between MarkiTx and predecessor companies is that this is primarily an information company. It is not eBay, where plenty of commercial IT equipment changes hands, nor is it quite like UK-based Environmental Computer, which deals in used and scrap computer hardware. It is, rather, the vanguard of computer hardware as a commodity; as something you don't care about as long as it runs the software you need it to run, and you can buy it at a good price -- or more and more, Frank notes -- rent a little bit of its capacity in the form of a cloud service, a direction in which an increasing number of business are moving for their computing needs. Even more fun: Let's say you are (or would like to be) a local or regional computer service company and you want to buy or sell or broker a little used hardware. You could use MarkiTx's price information to set both your buy and sell prices, same as a car dealer uses Kelley Blue Book. We seem to be moving into a whole new era of computer sales and resales. MarkiTx is one company making a splash in this market. But there are others, and there are sure to be even more before long. (Alternate video link.)


Robin Miller:
Frank, how did you get into this used computer business and why is it coming back?

Frank Muscarello:Yeah, I really started my career as we were just talking about with a firm by the name [Comdisco]. They were into leasing of high-tech assets in the early 1990s, doing about $3 billion in leasing of what was sort of mid-range Mainframe, Supercomputers, et cetera. And then once they would come back off a lease, they would refurbish and resell them. I was only a summer intern there. I was fortunate enough to have the CEO and Founder pay for my last year of school, guarantee me a job out of school. And in the middle of 1993 when I got out of college, he wasn’t hiring and so I ended up starting my own business buying and selling retail technology equipment.

Robin Miller:So when we say retail technology equipment, we don’t mean like the – we don’t mean this guy here _____01:06.

Frank Muscarello:No, nothing like a tablet or anything like that, what I meant by retail technology, Robin, is really is some simpler – something you see in a retail store, like a CVS or a Walgreens.

Robin Miller:Okay. Okay.

Frank Muscarello:Any of their front end cash register equipment in my old business, I used to buy them from companies that would go out of business, or upgrade their technology, take a position on the inventory and then refurbish and resell them because I knew what the price was, and so I built that business to $20 million and 100 people and I sold it through a strategic about 16 years later, which was a great lifestyle business.

Robin Miller:So what you are saying is that in many cases for commercial enterprise type operations, used/refurbish point of sales stuff and computers are the way to go, is that so?

Frank Muscarello:Yeah, I think that’s right. I mean, I think that’s really the premise. After I sold that business just to give you the full story, after I sold that whole business I realized that what companies had was they really had information. They knew when they were buying the equipment, they knew what the market value was, but companies that were selling had no idea what the market value was. So they really would buy it as a capital asset, but they would really sell it as though it was worthless to them and it had no value. And so we focused on really at market X, really being able to disrupt that secondary market which is a $312 billion market, by providing transparency for what everybody is buying and selling around the world and getting them to one central marketplace to be able to connect, that’s really what we’re doing.

Robin Miller:So you’re telling me that used or refurbished commercial computers, that’s a $312 billion market?

Frank Muscarello:Let me clarify.

Robin Miller:Okay.

Frank Muscarello:When I’m really talking about commercial equipment, I’m really talking about things that we call big iron inside of a data center.

Robin Miller:Right, right.

Frank Muscarello:I’m talking Cisco grade, Oracle, Juniper server storage networking equipment, right, that every environment uses, that is a enormous market, and it’s about $312 billion. The secondary market is actually a huge, huge piece of this and you have to think about why, because look at the cloud, and look at what’s happening in the software world. Software matters, hardware really doesn’t. So in that environment someone like a cloud operator that’s running effectively a virtualized machine, they don’t care what the underlining hardware is. So there is a huge resale value for that equipment because Moore's Law is stalling. We are essentially that exchange to be able to connect buyer and seller on the basis of price and we guarantee all sides.

Robin Miller:Well, you just said something back to me that I’ve been thinking and sang for some months now, because the old thing was – in the consumer world you look on craigslist and the guy wants to sell his computer that he worked five years ago for $1,200, and he wants to sell it for $400 and he really doesn’t understand that I can buy a better computer new today for $300.

Frank Muscarello:Correct, no question about it.

Robin Miller:But that stopped all of a sudden, didn’t it?

Frank Muscarello:Well, remember the basis of what I’m talking about isn’t necessarily consumer grade stuff which is what you are referring to

Robin Miller:I was using an analogy.

Frank Muscarello:It is a great analogy.

Robin Miller:It doesn’t matter if it’s a one use server?

Frank Muscarello:No and you are right, it has stopped and the reason that it’s stopped is think about our iPhones or our iPads or our tablets, right, it has no hard drive on it, it has no movable parts, it’s connecting to the cloud to get the application and bring it down, take that forward and look at something like an Oracle Exalogic server that’s $1 million, it does the same thing, right, you don’t need to have all these heavy burden software sitting on that server when you can have it in the cloud. That’s the equalizer here, so those environments where you’ve said, look I bought it for $1,200 and now I can buy a better one for $400, that’s true in some environments, but think about your iPhone; just because you have an iPhone 4 and you spent $250, doesn’t mean you need to go and spend on an iPhone 5 and spend $400 and get anything more, it’s more about the software that’s driving the change, hardware is really, it doesn’t matter.

Robin Miller:Hardware doesn’t matter?

Frank Muscarello:Exactly, it’s a commodity and should be traded like one. Software is really what matters in these environments.

Robin Miller:So there is a whole hell of lot of – people at Dell, and HP and other companies and if they’re hearing this and they know this and they’re cringing, their sales are in a toilet, aren’t they?

Frank Muscarello:Well, their sales are in the toilet for a couple of different reasons, one because of the NSA threat, obviously that’s a huge thing. The other thing is really because of look the enterprise is getting smarter right now, it’s realizing that it can do more with less. Sometimes they virtualize the machines, they’ll have a private cloud, sometimes they’ll go to a public cloud and be able to use somebody else’s infrastructure, that’s a problem if you are major OEM, but what we’re trying to do is look there are still great products that still matter that everybody should have, the point is if everyone should know what the true mark-to-market value is for their particular infrastructure. So if a big bank spent $100 million on their environment, they depreciate it down to zero, but we’re telling them it’s worth $32 million because there’s a buyer in India, that’s expanding rapidly that wants to buy it, then they take the $32 million and they go and buy more products they need to from Cisco, so it’s just the whole market is changing, the whole thing is evolving and now there’s just a better way to be able to use it.

Robin Miller:What you’re telling me is, I can see this, everybody automatically buying new equipment, you shop used, you shop refurbished, you shop – well your company of course and others – there are others, right?

Frank Muscarello:There are I’m sure other competitors, there is no one like us; eBay is probably the closest competitor and it couldn’t be further from really what we’re doing. I mean, eBay only sells $6 million a month in Cisco products online. But the problem is, the prices are inconsistent and all over the place. And by the way, that’s only $72 million, this is a $60 billion market just in networking equipment, so it’s a huge, huge market and one that candidly everyone is offline, we’re trying to bring them online. So they’re not really per se a competitor because nowhere else other than market X can anyone connect a big bank with another huge bank or cloud provider that wants to buy it on the other side, that’s the difference, is we are collapsing that because there are no language barriers Robin in any of the equipment that we’re selling. So whether Cisco is sold in India or Cisco is sold in the U.S., they can effectively trade that equipment with one another because they’re all using the same type, that’s really for the first time ever there’s a company and in exchange that’s disrupting that market and that’s us.

Robin Miller:I know the guys. I’m actually the only American member of the New Delhi Linux Users Group.

Frank Muscarello:Okay, interesting.

Robin Miller:And there’s also a Suncoast Linux Users Group where I live in Florida. And you know, what you are saying, I mean these are commercial guys, these aren’t hobbyists, these are the people who are running big iron and virtualize. These are the top-end guys and these are technology help groups.

Frank Muscarello:Right.

Robin Miller:I’m having this problem, help me out and that the people in New Delhi and the people in Tampa, Florida have the same problems, they use the same equipment; they listen to the same music nowadays.

Frank Muscarello:Well, but they use it differently, Robin, one would use it for less time, where one wants to use it for more, that’ true in any environment. I’ll give you an example. Chase spends $1 billion a year on their IT to run all of their businesses. You know Bank of America is using exactly the same environment, right. They’re probably buying it from the same Cisco rep. They are probably buying the same Oracle servers, et cetera. The issue is Chase’s stock is booming, capital is slowing, they’re able to buy when they want to, and they get rid of their environment every year because they can. Bank of America might be more budget conscious, may not be able to refresh as often, so they’ve got to run it for 36 months. They still run the same environment, why not let them trade amongst each other and get the greatest return. That’s the difference, is for the first time now they’re able to get to one central place to be able to get a guarantee from buy side and sell side on one central exchange and that’s market X, that’s really what we’re doing.

Robin Miller:Okay, you know Craig Newmark, is hated roundly in the newspaper business because he collapsed the classified market. He is a nice man, I know him, I like him, but a lot of the newspaper people hate him. Now the Cisco, Oracle and IBM, do they hate you?

Frank Muscarello:Look, craigslist has done an unbelievable thing for the environment, they’re disruptive force, but I would also say so is Uber, right, and so is Airbnb. So, to those that are sort of those in the market and those that essentially are providing disruptive platforms, sure there’s an element that people do not like because people generally speaking do not like change. However, the reality is we can actually help Cisco and Oracle and Juniper and any of them because we’re giving their customers a better way to refresh and refresh sooner and get a greater return on their investment. So they truly are innovative in their products and we get the company a greater return for their investment, they can then go and buy more of the technology that they need to sooner.

Robin Miller:What I’m hearing is, I mean it’s for many years car makers and I’ve told you about resale value, oh our cars have top resale value, buy it.

Frank Muscarello:Right.

Robin Miller:Isn’t that kind of what you’re saying now, the resale value is becoming a factor in your computer _____12:14.

Frank Muscarello:Robin, it’s precisely what we’re doing, it’s very smart analogy and the secondary IT market is very much like the used car market, right?

Robin Miller:Used truck market.

Frank Muscarello: Okay. Fine, however, the difference is, in those markets they havecars.comor they haveautotrader.comand they have Kelley Blue Book, they have someone telling them what the fair market value is, right. People don’t just buy a truck and then decide, oh I’m just going to leave it on the street because it’s garbage. Right? It may have no value to them, but the truck still has a residual value, just like the $100 million of Cisco networking equipment that this data center bought, it may have no more useful life to them, because they’ve upgraded and need to refresh to the next. Fine. But to the city of Chicago who is running 12-year-old legacy hardware that could yet buy two-year-old hardware and get 10 years more current than what they want for the citizens of Chicago, that’s a much better play. You could roll the same analogy to governments, to education, right, to cloud providers, you name it, hardware is the commodity, use it and trade it like one and that's why we're building the New York Stock Exchange of IT.

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Used IT Equipment Can Be Worth a Fortune (Video)

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