eBay for System Builders, Part 1

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The key to sourcing and selling whitebox systems on eBay (or any other e-marketplace) is to buy low, sell high. Sounds easy, right? Wrong. System builders, facing stiff competition from tier-one vendors and having little or no budget of their own for marketing, will soon discover these tasks easier said than done.

In this TechBuilder Recipe, I’ll detail strategies that can help you become more competitive by using eBay and other auction sites effectively. I’ve included sourcing tips, such as how to source on eBay and through foreign manufacturing companies. I’ll also provide marketing strategies that will help you get the most profit from your sales.

Developing a Niche

Let's first focus on market niche and product differentiation. Let’s face it: Tier-one computer vendors are probably going to beat you out on price. HP and Dell, to name just two, already have in place distribution agreements and conduct volume contracts that lock in low component sourcing prices. You'll have a hard time beating that. But you can develop a profitable business niche by learning to differentiate your offerings.

To do that, it helps to become familiar with an important auctioneering term: scarcity. All things being equal, scarce goods sell for a higher price than less-scarce goods. That doesn't mean, however, that you always have to buy scarce goods at a high price. Some vendors offer scarcity by knowing a particular customer niche intimately. Because they’ve established an inside track, they cater to a narrow set of needs and deliver superior products and services. Others have developed a niche based around service. Since they ship faster or provide onsite service, some customers will be willing to pay more for those kinds of services.

A handful of system builders excel by offering deep expertise in their particular fields and by providing extensive education to their customers. A recent CRN article attests to this: A few savvy system builders have varied their products to fit specific customer verticals. The firms cited are successfully building custom systems for big hospitals, schools, and real-estate agencies because they’re intimately involved with the needs and requirements of these clients. They know what these customers want because they’ve taken pains to develop their niches.

It pays to differentiate your offerings effectively, the way these companies have. If you can successfully differentiate your offerings, you’ll be way ahead of the pack.

The eBay Connection

Even with differentiated products, you’ll still need to buy low to maximize your profits. So where do you find components at prices similar to those that Dell, eMachines and others enjoy?

EBay is a great place to start. If you’re currently buying components at Best Buy, CompUSA or Fry’s Electronics, you’ll be surprised at the bargains available on eBay by comparison. Let’s say you’re building Wi-Fi PDA systems for a real-estate agency with mobile capabilities. You can buy Wi-Fi PC cards on eBay for far less than you'd pay at Best Buy, CompUSA or Fry’s.

Online Overseas Sourcing

You can also venture deeper into the sourcing world and buy components on overseas sites such as Alibaba.com, which had a big presence at the eBay Live trade show in Las Vegas this past June. Essentially, the site connects you with overseas and Chinese manufacturers so you can lower your sourcing costs.

Alibaba.com bills itself as the “world's largest online marketplaces for both international and domestic China trade,” and they’re not just talking through their hat. In August Yahoo shelled out $1 billion for a 40 percent share in Alibaba. The partnership will likely challenge both eBay and Baidu.com, a Chinese search-engine firm, for online-auctioneering market share. What's more, system builders can source goods through, say, China at very low cost, and then resell them on eBay. I took a spin through Alibaba’s site and found a wide range of technology manufacturers and categories to choose from which would be of interest to a system builder. For example, the site has product/manufacturer categories that include computer hardware components, computer peripherals, and computer software. Those listings alone contain more than 10,000 different products, along with contact information for each manufacturer.

There are a few other avenues to explore for overseas sourcing. Google search on "product manufacturing sourcing," and you'll come up with several other China-based outfits. If you decide to go this route, however, be aware that some overseas companies could possibly be flaky at best, or scams at worst. Do some research to make sure the outfit you’re interested in is legit.

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