Changing Cisco Pricing by Unbundling Hardware and Software

Changing Cisco pricing by unbundling hardware and software:

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"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

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Hendersonville Road, Suite 17 Asheville, North Carolina USA 28803 USA & Canada: 877-549-2680 International: 828-277-7272 Fax: 775-254-3558 AIM: R2MGrant BradReese.Com - Cisco Jobs
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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 ...

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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:-)

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Stephen and Anybod,

Page 2 Cisco states,

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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 Council.

"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."

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Brad Reese
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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 anymore".

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,

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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.

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Cisco also states on Page 3,

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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 competitors.

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,

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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 customers.

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 systems?

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

Brad Reese Cisco Repair

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