Understanding IT Pricing

When it comes time to make purchases out of their discretionary budgets, many IT people consult only one or two sources before choosing a supplier. But with just a few

April 8, 2005

11 Min Read
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"For computer hardware, we usually go directly to the hardware vendor," says John Millonig, a systems consultant at CHS, a Fortune 500 company specializing in foods, grains and petroleum products. "We use a specific VAR [value-added reseller] for the majority of our other purchases." CHS does make small purchases online at CDW and locally at Office Depot and Comp USA. Most enterprises shop locally when they want to avoid shipping time, but buyers agree that the lowest prices are generally found online.

This limited-vendor buying strategy is common in IT, because people are afraid to buy from sources they don't know. Many are also befuddled by the plethora of technology purchasing and price comparison sites on the Web, which may well include fly-by-night shops operated out of somebody's basement. Better to be safe.

But the "safe" bet these days isn't always the most cost-effective. In fact, our research shows that IT departments could be paying 25 percent to 50 percent less for commonly purchased items by doing some simple Web research before making a choice. And we're not talking about buying knockoffs, used equipment or plug-compatibles, either.

What's more, buying from a previously unknown vendor doesn't have to be like sending a check into a black hole. There are many sites that can help vet retail vendors, providing reviews, feedback and customer satisfaction ratings. Although you might feel uncomfortable at the prospect of buying from an unfamiliar online seller who might not provide quality goods--or any goods at all--these "seller ratings" can tell you a lot about a potential supplier. If you follow a few simple steps, you can save your company serious money--without risking your job in the process.To show you what we mean, we've shopped for a few of the most commonly bought items in IT, just to give you an idea of the range of prices and customer ratings you can find on the Web. This "minireview" is far from scientific or complete, but it provides a snapshot of the vehicles available for comparing prices, as well as a sense for how much your enterprise can save.

Needle in a Haystack

We were blown away by the number and diversity of sites on the Web that advertise the best price for a given IT commodity. Some of them are well-known; others appear to be little more than local garage sales. Some offer detailed feature comparisons of functionally similar products from multiple vendors; others give only a single, one-line product listing in each category.

There was simply no way to research all the sites, so we settled on six. Three of them--PriceGrabber.com, Shopzilla.com and Shopping.com--were cited in our interviews with IT professionals, price-comparison site operators and online catalog vendors. Another, PriceWatch.com, was listed as the most popular price-comparison site in the Nielsen//NetRatings list of sites most trafficked by IT executives. For comparison's sake, we threw in representatives of the two other popular multivendor selling avenues: online-auction leader eBay and online technology catalog TigerDirect.com.

We simulated a search and purchase in three categories: network devices, PC hardware and packaged software. Although many of these sites offer used, leased or refurbished gear, our test focused only on new, in-the-box products, so we could make an apples-to-apples comparison. This test was designed to show the range of results and prices--your experience will vary, depending on the sites you choose and the item you're seeking.Our first test was to compare prices for a Cisco 831 Ethernet router, which lists for about $500. The 831 is not Cisco's most popular router, but because it's a medium-priced product that doesn't have a wide variety of configurations, it lent itself well to apples-to-apples comparisons. This is a price-hunting key--be sure you're comparing items that are truly the same in size, memory, speed and options.

Of our six test sites, eBay turned up the lowest price, with a single new Cisco 831 listed at $349. That price was offered under eBay's "Buy It Now" option, so it would have been possible to purchase it without waiting for the end of an auction. However, the dealer had only three instances of customer feedback, so there was a possibility it wasn't legitimate.

Among the other sites, Shopzilla (formerly BizRate) came up with the next-best price: $366, offered by a seller with certification from the site and more than 300 customer reviews. Shopzilla provided a total of 33 sellers for the Cisco 831, with prices ranging from $366 to $546. One seller had more than 75,000 reviews; several had fewer than 20. The prices were difficult to compare because some vendors offered variations on the configuration, and some listed the product with different SKUs, which caused them to be listed separately on the site.

PriceGrabber.com returned the most sellers, with 34 choices, but the price range was $429 to $520. PriceWatch gave only one seller, with a price of $425. Shopping.com offered nine listings, including two higher-end Cisco 837s that should not have been there, at a range of $451 to $541. A TigerDirect.com search for "Cisco 831" yielded no results, but a further search under several categories of modems did turn up a listing for $499.

Shipping, of course, plays a factor in comparing prices for low-cost commodity items. Although many sellers offer free shipping, some charged as much as $25 to ship the Cisco 831. All three of the price-comparison sites let you enter a ZIP code on a price page and then recalibrate prices to include shipping. On all six test sites, we could move directly to the seller's shopping cart in one click, so there wasn't much difference in the checkout process.Living Large with Laptops

Next, we shopped for a notebook PC. We chose the Toshiba Tecra A2-S119 (list price $949) for the test, partly because it has a narrowly defined configuration and partly because it is relatively new on the market, having been introduced in October 2004. We wanted to see which sites could provide a range of prices on a newer product.

The best price tag was on Shopping.com, where a dealer listed the notebook at $879. But that price turned out to be a red herring, because the dealer wanted $29 for shipping. The next-best price was a deal listed identically on Shopping.com, PriceGrabber.com and Shopzilla: an offer of $895, from Buy.com. Interestingly, though the Buy.com listing had more than 95,000 reviews on Shopzilla and was named that site's "Smart Choice," it received only two and a half stars (out of five) on PriceGrabber.com after more than 1,200 user reviews.

The three price-comparison sites each generated 18 to 25 sellers for the Toshiba unit, and prices ranged from $879 to $1,185. PriceWatch listed only one seller at a respectable price of $905. EBay listed three units ranging from $950 to $1,050, but the low price came from a seller with just five feedback ratings, only four of them positive. TigerDirect. com listed four Tecra M2 models, but the A2 was not available.

In our third pricing test, we hunted for a popular software package. We wanted an application that is common to companies of every size and industry, so we settled on virus scanning. We chose McAfee's VirusScan 9.0, because it's a relatively new release and it seemed to be listed on more sites than Symantec's counterpart product. VirusScan 9.0 comes in several different bundles, so we decided to focus on the retail, single-user client package, which lists at about $50.For a single copy of VirusScan 9.0 retail edition, TigerDirect listed the best price: $19.99 with free shipping. All the comparison sites generated a similar range of prices for the retail VirusScan package, somewhere between $40 and $60. Both Shopzilla and Shopping.com listed their "smart" choices at around $41.

In this case, however, there were some very interesting off-retail offers. PriceGrabber.com, for example, listed 15 OEM sellers of the software with prices ranging from $6.50 to $27.50. PriceWatch returned several sellers offering volume discounts that would bring the per-copy price down to as low as $9. EBay listed one seller with 197 copies of the software at $4.75 each--but they would come without their retail boxes.

Clearly, the options for buying packaged software are more varied than in hardware or networking gear. Each price-comparison site listed more than 40 dealers for VirusScan 9.0, and many other sites listed prices for OEM or used software. The range in prices was also greater, stretching from $4.75 to $59. And, of course, software prices are tougher to benchmark, because many vendors offer their own, unpublished volume discounts.

Looking for Mr. Good Deal

There was no clear winner in our review of IT buying sites. Although PriceGrabber.com and Shopzilla offered the most choices in networking gear, Shopping.com returned the most results for the latest laptops. PriceGrabber.com offered the best list of OEM and retail sources for software.That's the most important lesson we learned from the test: You shouldn't always rely on a single site to give you the best price. Yes, you can get some good choices by typing one URL, but you could conceivably save another 25 percent to 50 percent by taking another 10 minutes and checking a few more URLs.

Whether you're using an online catalog, a price-comparison site or eBay, you should always factor in the credibility and reliability of the online seller. Many of the multivendor comparison sites offer independent customer feedback, which can help screen out questionable sellers.

But no matter what its site rating, an online vendor should also be judged by its warranty and/or service offerings. A company like TigerDirect, which offers money-back guarantees and goods under warranty, is a sure thing. A one-time seller on eBay may offer items "as is," with no warranty at all. There are many shades of gray in between, and you must decide what level of service you want before clicking the "buy" button.

When using price-comparison sites, such as Shopzilla and Shopping.com, be aware that dealers can pay a premium to appear at the top of the search list, whether or not they have the best price. Some comparison sites list only dealers that have paid a fee--they don't offer a full Web pricing search. Look for sites that return a respectable number of dealers for your item and provide some means of vetting the dealers to ensure that they're legitimate.

You should also be aware that some companies operate more than one price-comparison site. Shopping. com, for example, also runs Dealtime and PriceTools; PriceGrabber.com owns another site called BottomDollar. These companies clone their sites in order to expand their reach and generate more advertising dollars, but this sort of replication makes life more confusing for users.With a little extra research, however, you truly can save money on those small IT items, and you don't have to go to Joe's Cut-Rate Computer Stuff.com to do it. Just look beyond the same old sites and take advantage of the Web's search capabilities.

Tim Wilson is Network Computing's business technology editor. His background includes four years as an IT industry analyst, most recently with Enterprise Management Associates, and more than 14 years as a journalist specializing in networking technology. Write to him at [email protected].

Making Cents of IT Pricing

Everyone knows the Internet has changed the economic landscape and leveled the competitive playing field. Even grandmothers are cruising Amazon.com and eBay these days, so it should come as no surprise that the best IT deals are to be found surfing the Web. However, most IT professionals trust a handful of favorite sites to deliver the low prices--and in doing so, they miss out on big-time savings.

In this month's Affordable IT installment, Tim Wilson shows you ways to save money and avoid risk. We run through sample purchases of several common IT products, using sites like Buy.com, PriceGrabber, Shopping.com ,

Shopzilla, Tiger Direct, eBay andPriceWatch to score the best deals. Even Grandma would be impressed.You can find all our Affordable IT articles here.

How to Find the Best Price

• Look beyond your usual sources. Having good supplier relationships is important, but there's no law that says you have to buy everything from a single source. If you're hunting on only one or two sites, you could be costing your company money.

• Know what you're looking for. The Web can be a great place for comparative research on different vendors' product features, but the canny price hunter will search for a specific product in a specific configuration. Do your comparison after you've selected the product you want.

• Include all price factors in your equation. Often, two products may appear similar in price, but add-on costs--options, shipping or state taxes--may change the numbers. Be sure you understand all the costs before you compare prices.• Use sites that hold their vendors accountable. Many sites give dealers some sort of rating based on feedback from other customers. Take a close look at customer reviews, both positive and negative. If a prospective dealer hasn't generated much feedback, stay away--a low price is not much good if you never actually receive the product.

• Vary your search patterns. Some sites collect more pricing data on consumer-type goods, such as PCs and handhelds, while others have more information on business gear, such as networking devices and management software. Use a variety of resources to find pricing data.

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