The Washington Post reported earlier this month that an e-waste recycling innovator in California faces a 14-month prison sentence for attempting to extend the lifespan of personal computers. Eric Lundgren is caught up in competitive dynamics that often keep the electronics industry from performing more sustainably. But there are solutions.

Product life extension — keeping products and materials in use by refurbishing and recycling them — is broadly promoted as a key to a sustainable and "circular" economy. It’s a very appealing idea, but as Lundgren discovered, significant barriers are in practice.

We’re not legal experts, but we’ve spent many years researching how electronics manufacturers can adopt more sustainable and circular business models. High-end computer manufacturers regularly employ strategies to help control or manage the secondary market for their products.

High-end computer manufacturers regularly employ strategies to help control or manage the secondary market for their products.

One manufacturer we studied charged a very high software relicensing fee when its products were refurbished and resold, while a competing manufacturer only charged a nominal fee. Our analysis of the economic models showed the latter strategy to be more effective in the long term, because it resulted in a higher resale value, which justified a higher original sales price. (It’s the same for cars that command a higher price because they maintain more value on the used market.)

Not surprisingly, the computer manufacturer that tried to make money with high relicensing fees soon was forced out of the market altogether, in part because customers were unwilling to buy expensive high-end computers that had little resale value. 

In our study, the manufacturers provided both the hardware (high-end computers) and the software (operating system). In Lundgren’s case, the scenario is more complex because one company (Dell) is offering the hardware while another (Microsoft) provides the software. These supply chain partners have conflicting incentives regarding the secondary market of refurbished products. 

Who should take the lead to craft a circular economy solution here?

As with the manufacturer in our research, Dell has some incentive for its products to be refurbished, even if it’s not the reseller. Dell also has a reputational incentive: It doesn’t want its computers (and brand logo) ending up in disassembly camps or landfills in developing countries. Microsoft, on the other hand, doesn’t have the same resale incentive, and because the software brand doesn’t appear on the exterior of the product, they don’t face the same reputational risk. Microsoft also is very sensitive to any practices that raise potential piracy issues, as software piracy is a multi-billion dollar problem for the industry. 

So who should take the lead to craft a circular economy solution here?

The most obvious solution is for Dell to negotiate an agreement with Microsoft to make it easier for refurbishers to do at large scale what Lundgren has piloted. Making it easier to restore operating systems would support the refurbished market and provide economic and brand-enhancing benefits to Dell. 

Many organizations are focused on promoting a more sustainable and circular economy. In our opinion, they should focus their efforts on identifying channel conflicts such as this one and work with the supply chain partners that are likely to benefit the most from new and innovative business models. Typically, these are the Dells — the brands clearly associated with the final product.