Cisco's John Chambers answers his critics: What premium pricing?

CEO Chambers scoffs at claims of Cisco premium pricing, says it's all about total cost of ownership

Cisco CEO John Chambers addresses competitors' criticism of premium pricing, proprietary technology and circumventing IT when necessary.

In this installment of IDG Enterprise's "CEO Interview Series," Cisco CEO John Chambers talks with IDGE Chief Content Officer John Gallant, Computerworld Editor-in-Chief Scot Finnie and InfoWorld.com Editor-in-Chief Eric Knorr about what Cisco’s competitors are saying about the company.

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How do you respond to the three most common things that competitors say about Cisco? Cisco products are proprietary. They come at a premium. When you can't get a win with IT, you go around them to the business side and create a stir.

First, let's deal very much with proprietary. We are an open standard company, period. The Internet is open, any device to any content. When we moved into telepresence, we got huge market share on the high end. Sixty-four percent. Yet, we made it an open standard. We made it an industry standard available to others, not just for a Tandberg-type of interface, but anybody who wanted it. All of our base is off an open, standard net – the Internet. We don't have a proprietary operating system that only operates in our products. The Internet, any device can interface to it. And we want it to. First, it allows us to move in markets faster. Secondly, customers are protected. They don't lock in to a device operating system, a device or in the data center.

The second part of your question about whether we sell the technology to the business side at the same time? Of course. If you're really going to be a successful company, it isn't about how you just work the technology side. You've got to be able to develop the confidence to the business leaders, the CEOs and the IT organization at one time. IT is no longer about managing this complex data center and making it run. IT is about enabling the business strategy of a company, using it to differentiate yourself vs. your peers, drive productivity. I would argue [it's about] even embedding IT into your core capability, whether it's how you do services, product development, sales. In fact, at some point you won't be able to tell the difference between what's my business strategy and my IT strategy, they'll be so deeply intertwined. Anybody who's going to be successful here must learn to develop the trust, both of the IT organization, the CIO, the CEO, the business leads. In fact, if you only develop the trust of the CIO organization, you can't help the IT organization as they begin to move rapidly in key project areas.

What about the middle point about the Cisco price premium? They call it the Cisco tax.

Well, that's a little bit unfair. Do we come down Moore's Law at tremendous speed? The answer is yes. As long as you do that, customers don't have a problem with you making a premium, because if you don't make a premium, you don't develop new products. You don't protect their investment. They've all been through that.

Do I believe there's a rapid industry consolidation taking place? Absolutely. Do I believe that part of the decision for who's going to win is based upon your innovation, based upon your ability to catch market transitions, based upon making your products play architecturally together, protecting the customers' investments, and an open architecture? Yes. Will customers pay a premium for that? Absolutely. But, I would argue it's not a premium. I'd say [it's about} your total cost of ownership vs. your productivity. It costs a lot less. Wal-Mart considers us at the very top of their partnerships. You would think that unlikely because they are one of the toughest in the world on cost. Yet, if you talk to the CEO or the CIO, they would say we're at the very top of the list. If I had told you two or three years ago BT would say we're their strategic business partner, not just technology partner, you'd have said unlikely. Yet, we are.

If I were to have said the same thing about a GE… Are we tightly tied with the business group? Absolutely. Are we tightly tied with the CIO? Absolutely. Now the CEO? Yes. Does the CIO like us doing that? You betcha. So, it isn't a question of do you end run? In fact, if you didn't end run, that's usually a problem. The key is how you work toward common goals. Do we push the envelope on productivity? Yes, because I think any company that doesn't evolve their productivity, who doesn't move into new markets, regardless of industry, will get left behind. We are making people, at times, a little bit uncomfortable with how fast we move. This will surprise you: My mistakes have not been moving too fast. It's when I move too slowly in a market transition. Or, equally as bad, when I moved too fast without a process behind it.

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