In the wake of Arrow closing down its ITAD segment, many companies in the industry have commented on the situation.
Arrow reported second-quarter losses of approximately $17 million from its ITAD division, and CEO Michael J. Long stated that “business dynamics have changed since we entered this market.” Many theories behind the company’s struggles were proposed, most of which placed wholly the responsibility on Arrow’s misaligned strategies, such as a “cookie cutter” approach to ITAD.
While it is impossible to know for certain all of the details surrounding internal issues with Arrow’s business, Long was right about one thing: Business dynamics in the ITAD world have been changing.
Consolidation of the cloud
The first and most pressing change is the consolidation of IT assets under less roofs. The vast majority of cloud market share is held by just a few companies. The largest companies continue to acquire smaller players en masse, such as IBM’s recent acquisition of Red Hat and HPE’s recent acquisition of Cray.
Aside from the consolidation of cloud computing companies, enterprise utilization of the cloud continues to grow. IT enterprises are having to adapt to an industry whose rate of change continues to accelerate. The “hyperscale” cloud companies can afford to throw significant resources into adapting, while smaller companies can’t always do the same.
Another change affecting the cloud industry, and by extension the ITAD industry, is globalization.
Amazon’s cloud is currently servicing about 200 different countries. Google and friends are slowly but surely expanding their reach into other regions. Very few ITAD companies are truly equipped to be a sole provider for a global cloud company, and most cloud companies rely on several vendors.
As the cloud companies continue to globalize, they may find it more profitable and logistically sensible to grow their own ITAD divisions in-house to standardize processes. While highly speculative, this type of phenomenon has already begun to happen in some of the hyperscale cloud companies. Even on a more general level, Amazon has begun to take its logistics needs in house.
Migrations, consolidations and data center project variety
A common project for an IT asset disposition company involves the decommissioning and tear-down of a data center, wherein all the assets are liquidated and the site is closed down. Typically, these projects would be commissioned by small to mid-sized enterprises with few locations.
However, a significant chunk of the demand for ITAD services comes in the context of complex, multi-site data center migration projects. In these cases, data center migration firms or ITAD companies who are well partnered with data center migration firms will be better positioned to acquire the disposition business.
Growth of IT, with a caveat
While the demands put upon ITAD vendors increase, and the data center market will continue to consolidate with cloud companies, it may seem that the ITAD market as a whole will trend negatively. One of the forces counteracting this is the growth of information technology as a whole. Digital transformation will see areas previously unrelated to IT become new sources of assets slated for disposition, such as with autonomous vehicles. As new enterprises in other verticals start up and close down, there will still be a need for less large-scale ITAD services. That being said, the segment’s outlook does not support stability in this portion of the market for ITAD companies as more start ups and small enterprises move away from in-house hardware to cloud hardware.
Increasing distribution of networks
In addition to these points, networks are becoming more decentralized and including hardware that wasn’t previously seen. The growth of the Internet of Things and edge computing nodes will push ITAD companies to facilitate more distributed logistics if they want to retain managed services business from their clientele.
Low barrier to entry
While managed services requires a large amount of infrastructure to be able to provide logistics, data erasure, chain of custody certification, R2/e-stewards compliance, etc., there is relatively low barrier to entry for the remarketing and liquidation side of the business, pushing more ITAD businesses to grow the managed services side of their company.
All in all, the coming years may see the ITAD landscape move toward a winner-takes-all market where the ITAD companies best prepared to work with the larger and consolidating enterprises reap a much greater proportion of the rewards than has been seen in the past.
Jeremy Schaller is a data center industry analyst and heads public relations for Exit Technologies, an R2-certified global data center ITAD company.
The views and opinions expressed are those of the author and do not imply endorsement by Resource Recycling, Inc. If you have a subject you wish to cover in an op-ed, please send a short proposal to [email protected] for consideration.