The disk drive price war

Drive manufacturers are having a price war - with themselves. Why?
Written by Robin Harris, Contributor

I just bought four high-quality USB 3.0 3 1/2 inch drive enclosures for a total price – including shipping – of less than $20. The one negative: the cases were sold with disk drives and slightly damaged in the process of shucking the disk drive.

Someone found it cheaper to buy the external drive and then spend extra time and labor to remove the drive rather than buy the raw drive. But it is what drive vendors - and customers - are doing.

Today I saw a 2 TB drive in a case for $80 where a 1 TB raw drive was $75. The 1 TB drive was probably faster but still - $5 more for twice the capacity?

What's going on?
Disk drive manufacturers have found that the external storage market is fast growing and lucrative. But thanks to what I assume are strange transfer pricing the market isn't as fast-growing as it looks.

Transfer pricing is what one unit of a business charges another unit of a business for its product. Because the firm is buying and selling from itself these prices can be artificial - and set to take advantage of tax loopholes or other non-obvious financial incentives.

For example, it is common for companies to charge high transfer prices for products that are taxed at a low rate, and low prices for products that have higher taxes. Or it may be that even with low external drive prices the margins are still higher than what vendors get from the OEM deals that are the bulk of their volume.

Reduced warranty costs may also figure in, since once a drive is removed from its external case the warranty is no longer valid. I have almost never returned a hard drive so that is not an issue for me.

But those are just guesses.

The Storage Bits take
Seagate and WD management have to be aware of this. It has been widely blogged about and empty cases are available for sale from reputable companies. I've even heard tales of hard drives epoxied to the connectors on the external drives, though I have never seen it.

I suppose they are counting on the fact that the huge majority of computer users would never think of attempting to open an external drive case to reinstall the drive internally. I would also expect that the large majority of external drives are slower than the standard 7200 RPM 3 1/2 inch drives.

But it is still a mystery that a company can spend more money producing an external drive and sell it for the same or less than a similar raw drive.

The good news: handy ZDNet readers now know where to look to get lower-cost – although probably lower performance – hard drives when out shopping. If you need capacity more than speed this is the way to go. But I wouldn't use these drives for performance-critical apps in RAID arrays.

Comments welcome, of course. Why do you think this is happening?

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