When is a dollar not worth a dollar?

When you're a UK company trying to buy US computer gear

Microsoft's shameless assumption of a 1:1 exchange rate when re-pricing Vista for the UK market brought back memories of the bad old days when most IT companies simply swapped the dollar sign for a pound sign when preparing their UK price lists.

It also rang alarm bells when a call came in about an item we published yesterday, saying that we had the price wrong - despite the interviewee for the story saying that, yes, the UK price would be the US price converted at current rates.

The item in question was EqualLogic's PS3900 iSCSI box, and it's going to list here for £40,000, not the £34,000 originally quoted. Given that the US price is $67,000, that's 1.67 dollars to the pound.

To turn it around the other way, £40,000 would buy $78,000 at the bank today. The $11,000 difference would be more than enough to cover flying to the US to buy the box there, even allowing for the need to pay (and then reclaim) UK sales tax on the way back.

According to the Economic History Services website, the last time the average US-UK exchange rate was below 1.7 was in 2003*.

However, EqualLogic is far from being the only US company that's trying to turn the financial clock back by four years. For example, Adaptec recently announced a NAS box at $15,695 in the US and £9,995 in the UK, an exchange rate of 1.57, and AirMagnet's latest LAN analyser comes in at $9,995 or £6,000, a 1.67 conversion rate.

The tough bit is persuading companies to explain what that 15 to 20 per cent loading pays for. According to EqualLogic's UK rep, the US price is "uplifted and then converted into sterling to account for the cost of business to deliver this product overseas".

We asked for clarification - after all, there's no UK import duty on computing gear, according to HMRC, and you have to fund your sales and support staff and your resellers, wherever they're based. Indeed, many companies provide second-line support from the US office by phone and email anyhow.

We were told that "the European price includes freight, shipping, duty, currency fluctuation cover and support for EqualLogic's European business model".

Oddly enough, you can also find European companies doing similar things when selling to the US. For instance, German thin client developer IGEL quotes all its prices in Euros, pounds and dollars, and while it uses a rate of 1.5 for Euro to pounds (which is about what you'd get from the bank), its dollar prices are only 1.7 times its pound prices.

IGEL's worldwide marketing boss Stephen Yeo said the company had to trim back its dollar prices, otherwise it is too expensive for the US market.

"In my experience, US companies will use currencies to their advantage," he added. "But competition and the internet will always iron this out - people are intelligent and can work out if they're being ripped off." ®

*From a historical point of view, the current rate of almost 2:1 disfavours the pound, not the dollar - a century ago, £1 was worth nearly $5.