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Retail and OEM Components

When you are shopping for PC components, you of course want to pay close attention to all the technical details of the components you are considering: all of their attributes, features, limitations and costs. However, you also need to find out in advance what form of the component you are purchasing. Many PC components are available in two similar but distinct ways: retail or OEM. The units may look nearly the same or even identical, but they can be very different on the inside, or in how the manufacturer treats them after the sale. This is a very important issue in today's PC market, so I am going to try to explain how this often-confusing situation came about.

One of the keys to the success of the PC platform--the existence of the huge market for home-built and custom-built PCs, and the ability of PC users to do upgrades and expansions themselves--is the fact that most PC components are standardized and interchangeable. Actually, PC components have been modular since fairly early in the history of PC-compatible computers--even the oldest machines can be upgraded in one way or another. However, until recent years, internal components were rarely sold to the public, with a few exceptions. If you wanted a PC you bought a PC; when you wanted new hardware you bought a new PC. Internal components such as hard drives, motherboards and video cards were purchased by manufacturers who used them to assemble these systems; they were not sold to individual users. (External components like keyboards and mice were more commonly sold to consumers.)

As the PC market matured and "clones" began to dominate the market over the years, the market opened up and a flood of thousands of different makes and models of machines hit the market. The upgrade and custom-building market opened and grew rapidly, and component manufacturers recognized that there was a market for selling components directly to individuals. They began to create nice-looking retail packaged versions of their internal components, complete with user manuals and support software--and a bigger price tag, of course. These were typically sold through computer and electronic stores just as any other product would be. Manufacturers continued at the same time to sell components in bulk to PC makers. These are called OEM components, in reference to a common term for a large PC builder: original equipment manufacturer.

The final evolution of the component market began in earnest in the mid-to-late 1990s. PC makers would place a contract with a component maker to buy a certain number of OEM components, based on their projections of how many PCs they would sell. Of course, the PC market is very unpredictable, so OEMs would frequently have "leftovers". To recoup some of their costs, they would then sell these OEM parts to third party vendors, who would resell them to individuals or smaller businesses, primarily through mail order or Internet channels. After a while, the market opened further, and vendors began ordering OEM components specifically for resale to end users, bypassing the OEM entirely.

The current state of the market is thus that almost any internal PC component can be purchased in either a retail or OEM version. This is both good news and bad. I think more choices are better than fewer, and since OEM components can save you money, I am pleased that the market has evolved to its present state. The problem is that many people don't understand the important differences between OEM and retail parts. Some component buyers don't even know this distinction exists, and they sometimes make regretful buying decisions--such as buying an OEM part thinking it is a retail version.

The fundamental point to recognize when considering the matter of retail vs. OEM is this: a component manufacturer sells retail parts assuming they will bought by end users, and OEM parts assuming that they will not be bought by end users. Even though end users today can buy OEM parts, when they do this they must take on the responsibilities that OEMs normally would when buying such merchandise. Always keep this in mind when component shopping.

Why not simply have all parts be retail, to avoid confusion? There are very good reasons why this is not a practical solution. I'll explain some of them here, as I take a look at some specific issues that differentiate OEM and retail parts:

• Packaging and Contents: Retail components are normally packaged with all the supporting materials that an end user would need to install and configure the component. OEM parts are usually stripped down and simple: the component is provided along with only those supporting items that a manufacturer would need to install the device. OEM packaging usually includes the part in minimal packaging--perhaps just an anti-static bag--and maybe some jumpers and a driver disk. You typically won't have a full color manual, a fancy box, mounting hardware, cables and other accessories. The reason is simple: this saves a lot of money. If you're an OEM building 20,000 PCs a month, paying for 240,000 sets of unneeded accessories in a year is a gigantic waste of money, cost that would be passed along to the end-users of those PCs. For an example of the differences between retail and OEM parts, see this section on OEM and retail packaged hard disks.
• Customization: Let's say you are a big PC maker and want to contract with a video card maker to buy 400,000 video cards in a year for your PCs. Rest assured that you will get the care and attention of that company! If you are buying that much volume, the part maker will usually be happy to let you make certain "tweaks" to the product to reduce its cost or change its characteristics. Again, this saves the OEM money, and ultimately saves end users on their PCs. But for the component buyer, it means you may not be buying exactly what you think you are.
  OEM parts are sometimes slightly different from their retail versions, and there may even be multiple different OEM versions of the same basic model on the market. Some of the customizations are relatively minor, but some can be more significant. Sometimes a video card will have slower video memory, or it won't be upgradeable where a retail version would be. OEM processors often have no CPU fans because OEMs use their own cooling solutions. Hard disks may have a smaller cache or different firmware; CD-ROM drives may run at a slower speed or come without the "bonus" software found at retail. On the other hand, some parts are exactly the same, OEM or retail. It all depends on the particular part.
• Warranty: This is perhaps the biggest issue of all when it comes to OEM parts: many component manufacturers will refuse to provide warranty coverage for them. The reason for this is that the OEMs specifically tell the part maker when they buy in bulk: "we don't want your warranty for these components, we'll take care of it on our own". Again, this is done to reduce cost: it is more economical for a big PC maker to skip the warranty from the part maker and just pay themselves to replace any parts that go bad for their customers. The problem is that if an end user buys one of these parts and goes back to the original part maker, that company will often tell them to go to the original OEM for warranty coverage; the OEM won't support the user if the part wasn't bought from them, so the end user is stuck with whatever (short) warranty the vendor provided for the device. See here for more on this.
• Technical Support: Similar to the warranty issue, OEM parts are normally sold to OEMs with no cost added in to cover anticipated technical support. The component maker sells to the OEM at a reduced cost, under the assumption that the OEM will handle technical support for those parts. The part maker often doesn't want to talk directly to anyone who has these OEM parts.

The above points should not cause you to avoid OEM parts, but rather to understand the differences between OEM and retail so you can decide which is right for you. In some cases, you can save 10%, 20% or more by going with an OEM part instead of buying at retail (though sometimes the savings are much lower--shop around.) If you can live with the limitations of the OEM part in exchange for the cost savings, go for it. If you want the accessories, warranty and support that comes with a retail part, buy the unit retail from an authorized dealer. In every case, be sure to find out exactly what you are buying before you agree to the purchase.

Warning: If you are comparing the cost of components at a number of different vendors and find that some are selling the item for much less than others, the chances are high that those are OEM parts. Be sure to ask explicitly.

Note: Many OEM parts are in fact gray market merchandise.

Note: Incidentally, I think it's high time that component manufacturers recognized the current state of the market and stopped turning a blind eye to those who purchase OEM parts not knowing they are OEM. While OEM parts are an important part of the market, part makers could do a much better job of clearly indicating on the part itself whether or not it is an OEM unit. This would eliminate much of the confusion regarding this issue.

Next: "Gray Market" Components

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