Changing Cisco Pricing by Unbundling Hardware and Software

Discussion in 'Cisco' started by www.BradReese.Com, Aug 2, 2006.

  1. Changing Cisco pricing by unbundling hardware and software:

    "I don't hear our customers say we want our networks cheaper," Cisco's
    Lloyd says.

    "I'm hearing our customers say we want the product to be rock solid, to
    be told how to deploy it, to be upgradable, and for it to work the
    minute we turn it on."

    Software is the key to making that happen, and Cisco thinks it can no
    longer give away a major ingredient of its success.

    If "the network is the platform," as Cisco executives are fond of
    saying, then software is what makes the platform work and software is
    what differentiates Cisco's platform from those offered by competitors.

    Chambers is determined to make sure Cisco gets paid for that software.


    Carl Weddle, director of IT at trailer-parts maker Quality Trailer
    Products, sees benefits.

    He would no longer have to buy Cisco security products for parts of his
    network that already are locked down, and he could leverage an already
    purchased license to add used Cisco boxes to his network without having
    to buy hardware-software bundles.

    "I would love that," he says.


    Very interested in hearing the thoughts of readers
    regarding this article.

    Sincerely and gratefully yours,

    Brad Reese
    BradReese.Com - Cisco Power Supply Headquarters
    1293 Hendersonville Road, Suite 17
    Asheville, North Carolina USA 28803
    USA & Canada: 877-549-2680
    International: 828-277-7272
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    AIM: R2MGrant
    BradReese.Com - Cisco Jobs
    www.BradReese.Com, Aug 2, 2006
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    stephen Guest

    obviously doesnt go to the same customer meetings that i do then.
    ironically - the biggest gripes from the inhouse service developers are:
    "software bugs, cant find an image that balances features against stability,
    continual change to next version"
    they already do - see the price hike to go to the enterprise plus flavours
    of 12.2, or advanced security on the 12.3 releases - this can up the price
    of a low to mid range router by 30%.

    try buying a 2nd hand router and see what Cisco want to charge for you to
    have a valid licence on it..... nowhere near "free"
    the article reads like the kind of wishful thinking that sometimes happens
    when a company decides that the grass is greener on the other side of the
    fence. Or that they should be the "next M$oft"

    i suspect they havent looked at the costs and risks of licence enforcement
    if IOS would run on 3rd party hardware.

    now if they put this much effort into <insert your favorite cisco gripe
    stephen, Aug 2, 2006
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    anybody43 Guest

    IIRC that was the way it was say 8 years ago.

    You bought the router and then selected your software.

    Beginning with the low end routers and then switches
    basic software became bundled.

    That clearly makes some sense since you can't actually
    use the stuff without the software and it would seem to remove
    some redundant items from the pricelist. Fancy software
    gets priced at its marginal cost vs the basic bundled software.

    Announcement make no sense to me but then I didn't
    read it all:)
    anybody43, Aug 2, 2006
  4. Stephen and Anybod,

    Page 2 Cisco states,

    The company within several years plans to sell much of its software
    separately from the hardware and related maintenance fees.

    "We've seen with advanced technologies that a lot of the value comes
    from the software and not the particular hardware it runs on," says
    Cliff Meltzer, a senior VP who heads Cisco's Software Business Strategy

    "Letting customers pay for what they need, when they need it, is
    clearly the right approach."

    Cisco understands the significance of the change.

    "Our next frontier is to develop sort of a systems approach," says Rob
    Lloyd, Cisco's senior VP in charge of U.S. and Canadian operations.

    "We used to price in a classic network way. It's now a systems
    approach, more like a traditional software approach."

    Some software will be available for a one-time fee; some will be sold
    as subscriptions on a quarterly or annual basis, not unlike the
    software-as-a-service strategies from full-time software companies.

    And Cisco plans to make it easier to buy software, Meltzer says, by
    letting customers download and try the products using a one-click
    online program and an automated key specific to each customer.

    "Customers can give us a better sense of what is of value to them in
    the product," Chambers says.

    "Here is what security is worth to me, here is what the ability to add
    new capabilities such as switching or wireless is worth, here is the
    value that new application software brings to my architecture."

    Brad Reese
    www.BradReese.Com, Aug 2, 2006
  5. www.BradReese.Com

    stephen Guest

    we already have yearly fees to Cisco for "software support" - this is the
    concept that if you dont stoke your software carefully, then bits fall off
    and it degrades over time.

    1 advantage is that it makes support vs cost a tradeoff - i can choose
    whether the support is worth the fee.

    Again Cisco support is worth the maint. fees - but i dont see that anything
    that i am effectively renting should also get support fees as well.

    So this looks like a change to the licencing to "you buy this, so you have
    it until you decide to stop using it and the underlying hardware" right now,
    to "you rent this, so it stops working when you decide not to do that

    or much more likely - a key specific to the box you put it on. Which is
    great until you have a fault or do an upgrade and find you cannot transfer
    the licence to the replacement......

    frankly one of the few nice things about the current cisco software model is
    not having to manage per unit keys in a big network,

    i still have a very cynical attitude to this.

    i havent read anything in the article that makes it sound like something
    that helps me, only things that potentially make life more difficult.
    stephen, Aug 2, 2006
  6. Stephen,

    Cisco also states on Page 3,

    Cisco estimates it will take three to five years to complete the move
    to software licensing and acknowledges that the potential for customer
    confusion is high.

    Cisco must explain the new pricing, make pricing methods consistent
    across products, determine what becomes a line item and what stays in a
    bundle, and hash out the financial implications for customers and
    itself, Lloyd says.

    If software licensing introduces unnecessary complexity, customers
    could end up paying more than they do today or it could persuade them
    to give a competitor a try.

    Or it could make customers even more dependent on the vendor.

    Cisco already knows customers will need its help: what releases to run,
    what's included in particular licenses, the need for buyers to track
    licensing for compliance purposes.

    Some prices are sure to increase.

    Chambers hinted at as much at the user conference.

    "Do we charge as much as we should or as much as we could? Probably
    not," he said.

    "All the major software companies in the world charge major amounts for
    upgrades, and customers don't even blink."

    However, Cisco also could cut prices on hardware as software is
    decoupled, so a smart shopper may find ways to hold the line on costs.

    Cisco is taking a big risk, one that could open the door to

    It's also a risk that can't be quickly corrected by acquiring a company
    with a successful product, a standard Cisco tactic when it makes a bad
    decision on the direction of technology.

    In the next few years, customers will get a menu of hardware and
    software, including operating systems, from which to choose, Forrester
    Research's Rob Whiteley predicts.

    In that environment, it's possible that customers will decide to run
    third-party software and leave Cisco's software out of the equation as
    much as possible.

    Page 4 states,

    Some customers don't see the appeal in an unbundled Cisco.

    Indiana Farm Bureau Insurance has 130 field offices, all of which have
    older Cisco routers with standard software, making them easy to manage.

    Network services manager Cook has no interest in buying software
    licenses, which he says would just complicate matters.

    There are potholes in the road to unbundling.

    Licensing models can become complex and difficult; just ask Microsoft

    And Cisco can't afford to become complacent or arrogant, something that
    happens on occasion, some customers say.

    When Saint Luke's Hospital System, a 10-hospital chain around Kansas
    City with 5,400 network users, implemented VoIP three years ago, it
    chose Nortel Networks after a competitive bidding process.

    Cisco wasn't happy--and made its feelings known.

    "The implied comments were, 'I guess we're going to reconsider how much
    we're going to provide support'" for Saint Luke's remaining Cisco
    equipment, CIO John Wade says.

    "Why would you threaten us because we're changing part of our own

    The answer was, 'Because we're Cisco.' To me, they're leveraging that
    very dominant position to the exclusion of your own business

    Brad Reese
    Cisco Repair
    www.BradReese.Com, Aug 2, 2006
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