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Wednesday 25 May 2005

The great IT pre-marketing scandal [Lurks]

For years I have been exposed to the mechanisms that IT manufacturers (particularly technology/silicon manufacturers such as AMD, Intel, ATI and NVIDIA) have used to market new products and launch them into the channel so that retailers are eventually able to sell them to punters like us. In fact their collective strategy is so mind mendingly stupid, dictated as it is by the needs of publicly trade company share price bolstering activities, that they actually hurt the very industry in the process. But within there lies a method in their madness.
These companies actually manage to make punters like you and I buy less products and this has a knock on effect throughout the trade but perhaps not as much as you'd think. They manage this by making you wait until the next big thing arrives. Computer technology moves very fast, as we all know, and so we attempt to strategically buy into a new platform for computer upgrades or complete new systems, so as to gain the maximum lifespan out of our expensive investment.
With that in mind, let me tell you about what's so broken with the channel right now and use the current examples. AMD sends out engineering samples to the press of their latest processor, the dual-core X2. These chips are the very top end 4800+ model. Journalists get these before computer manufacturers have even seen samples of the entry-level 4200+ unit. At a certain date, the NDA lifts, and all these web sites post reviews of the 4800+. Wow, everyone wants one right?
Except that at this point, no one who manufacturers a computer has even seen one of these chips. Does that seem right to you? Wait, it gets worse. Then an OEM sampling phase kicks in and samples are sent to manufacturers but not of the top end chip, but in fact the entry-level chip. The gap in time between this happening is such that magazines hit the shelves carrying reviews of the latest processor.
Then in the following issue, it's reasonable to expect that the magazines might begin looking at computer systems with this latest technology in it right? Well, certainly that's their view. Yet no one can even ship a system with the latest and greatest because they haven't got any from, in this case, AMD. When they do, it'll be the entry level chip. So you the punter have been hyped up on this technology but you can't even see a system REVIEW of something based on that in the next monthly cycle of magazines. Bit strange.
So of course you're going to see these systems in magazines and go - well stuff that, I'll wait for that latest technology. After all, it was reviewed last month. It must be out soon right?
No, it's not. The next month, two months after the press have unveiled the latest and greatest, system builders get samples of the high end parts and then they can send those out to the press. At this point, people will start placing orders for those. This equally applies to processors and graphics cards. You've seen systems with ATI X800XTs in them, for example, and therefore you phone up a manufacturer and place your order.
The thing is, the manufacturer can't buy those yet. They can't buy this latest technology from the distributors because it doesn't exist. It arrives in a slow dribble. There's not suddenly a million parts out in the channel, the factories are delivering bit by bit and there's countless politics you do not see as a punter, going into deciding who gets those latest-and-greatest technology parts.
Now what happens with this is that the manufacturers offer 'allocations' or a promise to deliver a certain quantity of those parts to the channel. They would swap this for favors useful to them such as a really powerful marketing campaign with a manufacturer or perhaps enticing someone else to use or sell their products. The retailer who actually has a solid backorder of several hundred units is by no means guaranteed to to get stock, even though it's already sold.
Meanwhile, of course, the channel is full of the previous technology parts. Sitting on shelves in distributors, retailers stock and so on. Only no one wants it any more because the next thing is coming. People either aren't buying or they're preordering stuff which isn't available yet. Suddenly people who make, for example, graphics boards end up having to slash prices and instigate price protection schemes to try avoid having mass stock returned to them.
You'd think, at some point, that these problems would fade. They'd be some correlation between demand of the latest technology and supply. Factory production would be ramped up or down to match, right? In fact, that's not the case. It might amaze you to learn that the UK's biggest seller of high-end graphics cards has a back order of ATI X800XT graphics cards at around the 500-mark and they have absolutely no idea when these might arrive and people have been on the waiting list for five months!
This isn't new technology for Christ's sakes, this is the previous generation of stuff. It isn't just graphics cards. It's also extremely difficult to buy, for example, an AMD FX-55 processor right now. Hang on a moment, we're saying you'd have trouble buying an old FX-55 right as AMD are launching the X2?! Yes, that's what we're saying.
The practical ramifications are that when punters see PC systems with the latest processors and graphics cards in them, they place orders for them with the system builders. They then wait months before the system builder can even get near the parts to build that system. Unsurprisingly people cancel and there's a general feeling of bad karma.
The point is though, what is the reason for launching technology, making people drool over benchmarks and obtaining reviews and pictures in the magazines? It makes people wait for this technology. They can't buy it for a very long time yet; some will go sod it and buy the old/available tech and some will put off their purchase for the 4-5 months it takes until general availability.
Net result, punters with cash in their pocket looking for upgrades end up not buying them. That means a slow down in IT spending across the board. That means less revenue for everyone in the channel. Counter, you would have thought, to the very reason for existance of these technology firms.
What we're seeing is a form of collective stupidity, an arms race of ignorance if you like. Since one firm does it, the other tries to get their product announcements and marketing out just as ludicrously early as the other guys. Meanwhile, the only actual availability they really care about are actually the volume low/mid range products which account for the largest fraction of their revenue anyway.
You see that's it in a nutshell. These firms don't actually have a huge amount of interest in making these latest and greatest products available for you to buy. You are, in fact, part of their marketing plan. This artificial demand for the hottest new expensive high end technology is something that advocates their brand and rises the stature of the company and allows them to get on with shipping the bread and butter stuff that makes them money; Intel Celerons, AMD Athlon XPs, Nvidia fx5600s and ATI Radeon 9200s.
The only way to combat this is by indifference. Read the latest technology reviews but don't get your hopes up. When it finally appears at your favorite e-commerce outlet with a green numeral next to the IN STOCK icon, then you can get excited about it.
After over a decade in this business, from what I see the problem is only going to get worse.


  1. Very interesting blog. Probably the best insight into this from the punters end is the QED that follows; buy what you can afford that's in the market today if you want to upgrade today. Don't fanny around because it's just stoopid. Bish bash and indeed bosh.

  2. In fact from a consumer point of view, you're best off buying the high-end previous generation of tech just as the hype is building for the next-gen. Then you get a damn good high spec product for a great price and absolutely NO problems with getting one. Like with the X800 and 6800 graphics stuff came along, prices of Radeon 9800s dropped way down so there was no excuse not to pick one up. Then you simply bought into the medium-range next-gen part when it was available for a nice performance boost and your previous-generation top-of-the-line card still fetched good money on eBay.