October 30, 2007 4:00 AM PDT

Trouble on horizon for 'white box' PC makers

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The discount that top PC vendors like Dell get on Windows from Microsoft was the biggest factor in his decision to stop selling white-box PCs, he said. The direct-sales models of big companies like Gateway and Dell forced him to shutter both of his brick-and-mortar stores two years ago and take his business to the Web to compete. Now, he only sells Dell computers.

"They're easiest to sell because of the name recognition," Klammer said. "Are they any better than other computers? No. But brand names sell."

There is something working in white-box desktop manufacturers' favor: the consolidation taking place in the worldwide PC market. In recent years, Lenovo took over IBM's notebook business, Acer swallowed up Gateway and soon possibly Packard Bell, and even Dell and HP brought boutique custom gaming outfits Alienware and Voodoo, respectively, into their folds.

Fewer major players can mean more power when it comes time to negotiate with component makers, like Intel, Advanced Micro Devices, Seagate, Western Digital, and others. So, for those component manufacturers looking to have some bargaining power with the big PC makers, "part of the defense is to keep a healthy white-box market," Kay noted.

Dell actually tried to horn in on the white-box market back in 2002, but didn't stick around long. The idea was to offer unbranded machines to smaller distributors at lower prices back when the white-box market was white-hot. At the time, the idea was that small PC assemblers would jump at the chance to work with Dell and still not hurt their own profits. At the same time, it was also another way for Dell to expand its share of the PC market.

But after a little over two years, Dell called the white-box program quits. Dell's experiment is an instructive glimpse at how the white-box PC market works, Kay said (namely, that it's constantly in flux). What may work for a couple of months may not work for the next few, since it all comes down to what kinds of products the smaller manufacturers can get at the merchant level.

Though the white-box market as a whole accounts for more than any one single vendor, including market leaders HP and Dell, it likely will continue to decline even further--particularly because the economics of participating in the PC market heavily favor the big companies. When ordering large quantities of products from Intel or AMD, the discounts are generous for companies that place hefty orders. Small-scale assemblers have no hope of striking similar deals.

"They have to be extremely nimble. They keep morphing their business model almost on a daily basis to stay in business," Kay said. "It's a tough game."

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23 comments

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Whitebook market extremely competitive
It's very hard to compete with the major players in the laptop market. One problem is that AMD's and Intel's whitebook programs don't offer enough flexiblility to allow a partner to differentiate themselves from the major players. Most laptops are vertically integrated and sold as complete systems for the most part. Because parts are not standardized it's hard to get variety of motherboards for a given model. Because the big laptop companies jack up the price os their batteries the whitebooks have significant price advantage.

I do think that whitebooks could have a significant advantage if they offered features such as expanded memory or tougher case at a reasonable price.
Posted by rshimizu12 (98 comments )
Reply Link Flag
Will never happen
"I do think that whitebooks could have a significant advantage if they offered features such as expanded memory or tougher case at a reasonable price."

While that was the case with white-box systems, the form factor of most notebooks will make that impossible. Consumers want smaller systems with more features and the only way to do that is to design components that will fit in the small 1.3-inch x 2.1-inch space at a 90 degree angle that is available. A white-box notebook form factor would, ultimately, end up looking like a smaller white-box desktop.
Posted by thenet411 (415 comments )
Link Flag
Consumer is the looser.
Standardization is what made white-box assembly possible, and in particular the standardized mother board form factor. Manufacturers realized their "mistake" and now oppose standardization, preferring instead to go with their own proprietary designs. Great for them, bad for the customer. Why do you think the price of notebooks is two to three times that of desktops with equivalent capability?
Posted by rich015 (5 comments )
Reply Link Flag
Standards do work
Your exactly right when it comes to standards, they get everyone on the same page and make things interchangable. They do affect the cost of building systems, the huge spread between desktop prices and notebook prices are a perfect example of that.

The big OEM's have not recognized this as a mistake, they know the value of standards, and how they contribute to efficiency, and cost effectiveness. There are still a lot of standards being adhered to in the desktop products.

Notebooks have never had the benefit of an internal hardware format standard, and now days really can't. All of the personalization and the loads of options and configurations being crammed into such a small space does not lend itself to standard parts, there just is not the space for it in a notebook. With the recent trends in notebooks being a personal artistic expression, makes it even more difficult to even think of creating a "notebook" form factor standard, everyone is trying to differentiate their offerings not only with specs but appearance too. The size of a notebook is critical, the size of a desktop is not so critical, even fully loaded most desktops have alot of open air space within, notebooks have very, very little.

Because space is such a premium in a notebook, standard interconnections (like PCI) between components, are often sacrificed, for custom boards that contain all the options, all on a single board. There just is no reason to sacrifice the space for standard connectors between the PCI Bus and say the Network, Video, Audio, Drive controllers, video hardware, etc.

Additionally with so few Enigineering OEM's contributing to standards and PC Platform development, the platform is devolving into a mis-mash of competeing 'proprietary-standards' which yes is an oxy-moron...

Whats even worse is now Microsoft appears to have significant influence on these standards, which I think is a mistake. They have do not have any real hardware engineering or manufacturing experience, what right do they have trying to influence it.
Posted by chash360 (394 comments )
Link Flag
Nothing Changed
It would seem that a COMPLETE system has lessened, but more and more people are now building their own computers. Just recently I've built a new Gaming System worth $1000 after rebates and "hot" deals on the parts and case. Alienware would have charged me around $2200 for the exact same system.
Posted by Maarek Stele (170 comments )
Reply Link Flag
dell
I just built my son a mid level PC - about $600, no monitor, no OS. Could have baught the same thing from Dell for $550 including a 19 in. monitor. Never again.
Posted by gggg sssss (2285 comments )
Link Flag
Klammer is a moron...
Obviously Klammer has never tried to build his own box...

I put together a box that was at least 1/2 the price of a Dell box and had 2x the performance. Dell's materials are proprietary which means that their driver updates usually lag behind a lot.

Heck, I once read a forum article at the Dell website (that eventually got closed by Dell) having to do with their Creative Labs Live PCI card they had. People tried to do updates from the Creative site, and their driver update wouldn't even recognize that card as existing on the system.

That forum post was like 300 pages long with well over 1500 people responding to it fuming as to why that cards performance was so terrible. All that those people got in reply was a "Thank you for your concern, this topic has been closed".

That was a bogus way to handle it. And it still shows in their parts today! Try running an audio CD on an Optiplex GX620 and something else... you'd be amazed to NOT get any stuttering in the audio.

Dell uses overly costly crap parts, for PC's. If you give their pc's a workout, they fail. The only consolidation is their Server line, which has progressively gotten better.

The only part you benefit from is a cheaper OS. The rest is the Dell name. An expensive, under performing performance machine. So, you go ahead and dish out 5K for a XPS box while I build it to the same specs as a generic box for 3K. No thanks. *** does a performance gamer system need ECC ram for... Makes not a dang bit of difference, but hey... 2GB of RAM will only cost you $700 vs the 2GB of non-ECC at $300... stupid stupid stupid.
Posted by sniperdoc (61 comments )
Reply Link Flag
sniperdoc
I want to build my own gaming comp I think I know what I need but I am scared I can't do it. any advice
Posted by ratdog25 (7 comments )
Link Flag
I would say ...
... that computer industry eventually will follow the path of audio hardware manufacturers. Once the invention in the industry will slow down and the Moore's law will cease to work, the major players will have nothing left but to fiddle more with old technology producing various "blends" of products and will try even harder to make more profit at the cost of reduction of quality.
Good news is that it is not going to be happen tomorrow nor in the near future.
Bad news are that the practice of locking customers to the brands is becoming more fashionable than ever.
I agree that the notebooks putting a real thread at interoperability of computer components. And the more users are favoring the notebooks the more likely it would be harder in the future to get a system that is tailored to one's taste.
Posted by SneezingPanda (21 comments )
Reply Link Flag
At least white box shifters can sell a machine with no OS
Generally speaking, I've found that white box shifters tend to allow their PCs to be more customisable than the major OEMs, which can allow you to adjust the components to your liking and even remove some components you won't need (e.g. no keyboard, mouse or monitor needed if you're getting a replacement desktop PC).

In particular, many whitebox shifters let you buy a machine with no operating system - try doing that with the major OEMs for a desktop or laptop! Why should Linux users have to pay for an OS they're only going to have to wipe off as soon as they get the machine?

Having said that, I looked for a whitebox laptop with no OS pre-installed earlier this year and couldn't find one, instead settling for an Acer with XP pre-installed (which, yes, got wiped off and Linux put on it).
Posted by rklrkl (143 comments )
Reply Link Flag
Dell offers them, too
Dell offers some models with a free copy of Ubuntu in place of OEM Windows.

Price out an Inspiron 530N (with Ubuntu) against an identically configured Inspiron 530 (with Windows Vista Home Basic) and you'll find that the N costs $150 less.

Dell also offers a laptop with this cost savings configuration.

-Mister Winky
Posted by Mister Winky (301 comments )
Link Flag
Improve drivers and I'm back to whitebox
I bought a whitebox laptop a couple years ago. Driver support for it was pretty bad. The graphics card required driver updates from the vendor, Asus, who dropped support for it very completely just after I bought it. I don't like being stuck in time with an ancient driver. Newer driver installers fromthe chip vendor refused to install on my laptop, telling me I needed to get updates from the whitebox company, who offered nothing.

I'd also like to be able to get larger capacity batteries, which were not available for mine. I dont' even know where I'd get a replacement for the now dead battery that came with it.

Improve some of these issues and I'm there. I like having very fine-grained choice in what exactly is included in my computers, including not only which graphics vendor, but what particular chip from that vendor, CPU combination, screen size and resolution, etc.

I'd love to see a standard laptop motherboard formfactor, and be able to choose which exact motherboard to put into which exact laptop "case", select exactly what screen resolution, size, and finish to get, etc. It'd also be nice to see a standard laptop grahics card formfactor and other things like that, so I can create a laptop to the exact detail that I can create a desktop today. That'd be very cool.

But today I'm shopping for battery life and driver support, and I haven't heard very good things about these from the cheapo whitebox guys. I'm little concerned about the name brand that's winning my current shopping interest, as it has a lesser reputation for general reliability than others do, but they have the laptop closest to the exact specs I desire. They are not exactly what I want either, but I have not found a closer fit from any other brand, let alone one with a better reputation.
Posted by amigabill (93 comments )
Reply Link Flag
They should offer Systems without OS
I do agree that all the OEM's should offer platforms without an OS for a discount. I suspect the reason they don't is from a standpoint of support and percieved quality. Many people would order the OS-less system, and then call tech support on why they can't get some hardware to work, well thats because its a custom piece only found in this model notebook, to which you need such and such driver, etc. Support costs add to the cost of the system, a pre-installed OS, configured, tested and proven to work generates a lot less calls to tech support. The Big OEM's will not sell a machine without offering support for that machine, how do you support a machine that you did not configure in some predictable way?

Only the 'white-box' OEMs will sell systems without support, which has a tendancy to define their customer base of very tech-savvy users. Perhaps the Big OEM's could learn from this, in fact leverage it, with products and prices geared toward the Technical user who needs little tech support.
Posted by chash360 (394 comments )
Reply Link Flag
See above -- Dell does
<a class="jive-link-external" href="http://www.news.com/5208-1041_3-0.html?forumID=1&#38;threadID=32505&#38;messageID=328398&#38;start=0" target="_newWindow">http://www.news.com/5208-1041_3-0.html?forumID=1&#38;threadID=32505&#38;messageID=328398&#38;start=0</a>
Posted by Mister Winky (301 comments )
Link Flag
RE: they should offer systems without an OS
Well the big boys easily could
Apart from the support drivers issues there are other reasons
The pre-loaded software that you get has trial applications that the software developer pays for exposure
MS has great incentives
Also if you want to keep your low prices you need to keep the volume up
Posted by lookoutmama (9 comments )
Link Flag
You have a point
I bought a white box computer strictly because I could get one without an OS and without all the crapware on it. Ended up costing me a ton less than the equivalent would from Dell/HP/Acer etc and I did not have to bother with getting rid of an OS I would never use.
Posted by rhomp2002 (13 comments )
Link Flag
Is everyone blind? Dell offers Windows-free PCs for $150 savings
For everyone complaining that OEMs don't offer PCs without OSes, you're forgetting that Dell offers the Inspiron 530N with a free copy of Ubuntu or FreeDOS for $150 less than an identically configured Inspiron 530 with Windows Vista Home Basic. They also offer a comparable laptop model with free Ubuntu or FreeDOS.

All this talk about "I can build a PC that's twice as fast for half the price" is complete rubbish. If you're a gearhead and you want to build your own PC with specific components, that's fine (I've done it myself several times), but no one can compete with Dell's scale and buying power once you eliminate the OEM cost of a Windows OS.

-Mister Winky
Posted by Mister Winky (301 comments )
Reply Link Flag
DELL NO OS-NOT so
I know they refused to sell one without an O/S to my boss..this was over the phone. But really the big problem with Dell is their sorry tech support
Posted by fletchb (151 comments )
Link Flag
No OS not what average user wants
People want plug and play and that's what having a OS
preinstalled is all about. Sure, a few want Linux but most still
want a Windows flavor. I do think Apple has made some
headway because of all the hype about the iPod and the iPhone.
Plus, the fact that it can still run Windows if you decide you
don't like OS 10. Linux has started way late in the game to get a
big PC manufacture to offer and support a Linux computer. Even
though Linux has made strides in making the OS more beginner
friendly. It has a long way to go before mainstream user's jump
on the bandwagon. Apple is playing Microsoft's misstep with
Vista well so far. Gaining ground against the big giant. But can
Linux do the same?
Posted by jscott418-21618367473133020464 (1660 comments )
Reply Link Flag
Apple - Flavor of the moment?
Everyone on here will be on a Mac within 5 years.
Posted by AJ Pants (143 comments )
Reply Link Flag
um?
how do you figure?
Posted by RayGentry (20 comments )
Link Flag
wishful thinking
I'll be sure to read that from my Windows-based Intel Quad in 5 years...

like it or not, Windows isn't going anywhere. Never underestimate legacy. That's why computers still have printer and serial ports.
Posted by jrm125 (334 comments )
Link Flag
Not in this lifetime
I have to work on Intel Macs all day along with Window based PC's and I can honestly say I wont be moving to the Mac's. I would also like to add that I agree the notebooks are becoming more popular and have advantages but I will still stick with my white-box's for as long as I can.
Posted by drekow (1 comment )
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