By Paul Kunert
11 July 2008
The Government’s chief information officer John Suffolk says a one per cent margin on commodity items is a reality but has warned suppliers there is undoubtedly room for further price aggression in the public sector.
In a channel exclusive, Suffolk told Microscope that margins on items including desktops, printers and office software were “frequently” one per cent as the Government flexes its buying power in pursuit of “best value”.
“Technology is not immune from the ravages of commercialisation and if I am buying a commodity product that has no intrinsic value, why would I want to pay anything more than a commodity price, and that frequently includes a one per cent margin
“If you as an SME [supplier] or any other organisation are betting on the basis that you’ll maintain your price, that is a false position,” he argued.
Asked if there was room for further price aggression in the public sector, Suffolk replied “Absolutely, we are getting to the stage where we are asking where is the value add in IT these days?
“Is it at the PC end? Absolutely not! Is it in office software? Absolutely not. And that is why you have lots of people [practically] giving this stuff away now,” said Suffolk.
Resellers relying on low value sales would struggle to survive in the current economic climate said Mike Rodewell, Computacenter director of corporate hardware, “there is a need to mix higher ticket items with commodities”.
In the software market there was an opportunity to make an improved margin by advising customers on the better use of licensing schemes and concurrent usage models rather than peddling shrink wrapped product he added.
Nick Grossman, business development director at 2e2 was surprised margins had fallen by such an extent but said this justified its decision to steer clear of things like reverse auctions in the public sector.
Specialist public sector reseller Probrand is Beta testing its e-commerce tool, the IT Index.Gov, which enables IT managers in the market to view availability and pricing of 175,000 items daily via a live feed from wholesalers.
The current margin levels were inevitable said Steve Bushall, marketing director at Probrand, but he anticipated that its online tool would allow it to compete effectively in the leaner market.
