On a similar topic, I wrote a piece this week for Vice’s Motherboard about the 2013 Mac Pro that briefly mentions the thing I’m talking about here. This goes a little more into why I did it.

Today in Tedium: I guess the saying is that one man’s trash is another man’s treasure. If that’s the case, I’ve been treasuring a lot of trash lately. Between the $1 university I recently bought and the $10 Mac Mini I got working , I’ve been on a roll of maximizing the value of stuff that has long seen better days. And it’s with that in mind that I recently tested the waters of the upgrade arbitrage market, in an effort to build a workable home computer that I could use when I wanted a little more graphical oomph or I wanted to mess with some experiments. Today’s Tedium ponders the hidden value to be found in second-hand or refurbished workstations and used server hardware. — Ernie @ Tedium

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The amount I paid for a HP Z420 workstation, a machine that, seven years ago, could be had for just below $3,000 in its base configuration. (And upgraded for many thousands of dollars more.) My model, produced in 2013, supports many of the same components as the just-retired 2013 Mac Pro, including the same kinds of RAM and Xeon processors. Back when it first came out, this machine was probably used at an engineer’s desk, in a video-editing rig, or by a classroom of college students learning something suitably advanced and technical. I got a particularly low price because I bought local; you can find ’em on eBay for maybe $100-$150 with a processor.

A giant stack of old HP Z220 workstations, as recently highlighted on the surplus sales site GovDeals. Such sales are common, as these machines are no longer the fastest you can buy. (The Z220, for what it’s worth, generally uses older-but-still-plenty-fast consumer-grade CPUs; other variants in the HP Z series use higher-end Xeon processors.)

The basic concept behind upgrade arbitrage, and why it’s so effective

If you’ve ever walked into a store like Marshall’s, TJ Maxx, or Ross, you probably are familiar with the concept of arbitrage—the idea that you can exploit weaknesses in an economic structure to come out ahead.

In the case of these stores, you’re getting access to products that would cost much more at another store, but have issues that led to that product appearing in another market. Maybe the size is uncommon. Maybe there was a production overrun, or it was produced during the wrong season. Or maybe there’s a quality issue that’s imperceptible to you but was enough to prevent that shirt from going to Neiman Marcus.

Either way, you saved a lot of money by going to the cheaper store that focuses less on aesthetics and customer service and more on turning over inventory.

Arbitrage drives entire business models—for example, the recent trend of companies that literally sell bulk returns to people to resell on eBay at a higher markup. That guy who gives away money in all of his YouTube videos is likewise taking advantage of a similar disparity—he can make a ton of money through brand deals and ad revenue, and he can make more of it by spending some of that money in the most aggressively viral way possible.

More generally, if you’ve ever visited another country and benefited from a favorable exchange rate, you’ve practiced arbitrage.

Arbitrage works similarly when it comes to electronics or computing. Often a product no longer makes sense for its original target audience, so it goes on eBay or a surplus outlet, where it reaches someone for whom it does.

But in the case of what I’ll call “upgrade arbitrage,” the situation highlights a dramatic disparity between two markets. To put it simply: Back when a computer or similar product was originally released, it was prohibitively expensive for many consumers, while also being significantly more powerful than anything the average consumer could buy, anyway.

At the same time, there’s a general tendency for business-focused technology to trickle down to consumers after a while. Not everything—of course, there’s always that errant business-world feature that makes no sense in a consumer context. But give it a few years, and technology that’s just as fast will catch up to that big, bad machine from a few years prior.

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That happens to be the point, surprisingly enough, where the business-focused gear depreciates enough in value that it becomes accessible to consumers who otherwise might not be willing to pay quite so much for it—but given its lower price, it’s suddenly significantly more valuable and can compete with modern, mainline hardware.

If a six-year-old workstation can get you within shouting distance of a modern consumer-grade computer for a lower price, even with a little not-made-for-the-home weirdness, you’re coming out ahead while wringing additional value from something that otherwise wouldn’t be worth very much.

This concept isn’t new. Far from it. Surplus auctions have been around forever, often in the context of military or higher education, and quite often, these auctions aren’t always heavily promoted to the public. And sometimes, it allows people to get a real deal on a machine that is no longer particularly valuable to its original owner.

Maybe we’ll start a business with this thing! (The Greenville News/Newspapers.com)

To give you an idea, I found an interesting story when I was looking around for stuff for this piece. In 1969, a group of four students at the University of South Carolina did something pretty wild: They bought a gigantic IBM mainframe computer. The IBM 704 computer, when it was originally produced, cost $50,000 around 1961 ($427,300 when adjusted for inflation), when it was first sold to the U.S. Navy Mine Defense Laboratory in Panama City, Florida. (So few of them were sold that every installation was documented.) But around 1968, the laboratory started to upgrade its old gear, so they sold the computer at auction to this group of students.

“A lot of computer people around here are laughing their heads off at us,” one of the four buyers, C. Brian Honess, told the Associated Press. “But there are a few who think that maybe we’ll make a million dollars on the thing. All I know is we have what we wanted and we all think it will be fun to put this thing in operation. We think we got ourselves a bargain.”

The cost? $2,200 (or $15,300 today, a 97.4 percent discount when accounting for the inflation between when it was sold and when they bought it)—and they had to pick it up and attempt to rebuild it themselves. The goal? To get it working, give it a place to live (that was supplied by USC), and learn something along the way.

Honess later revealed what happened to this machine in an article he wrote for BYTE magazine in the late 1970s. Honess spent nearly 30 years teaching at USC before his passing in 2015, and occasionally moonlighted as a tech journalist. Here’s what his bio said:

He reports that he has been an active “building” radio amateur (ham) for 20 years; his interest in computers goes back to programming scientific business applications on an IBM 1620. He learned about what was Inside computers by buying a surplus IBM 704 from the government, and slowly taking it apart (donating, selling and scrapping the parts as he went). Another 704 was eventually purchased, and this time it was built back up, from the inside out. This is not exactly a typical personal computer.

This computer likely taught him a lot of technical things that he never would have learned without it in his possession. It was massive, but it was likely a giant Raspberry Pi for him and his friends, and it was the ultimate example of trash-into-treasure.

This phenomenon continues to this day. In fact, it’s even easier thanks to tools like Craigslist, eBay, Facebook Marketplace, OfferUp, and Shop Goodwill that are designed specifically for this.

So that’s why, to me at least, buying an old workstation makes sense.