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How Cisco's new ONE Software pricing model will affect customers

Breaking down the financial impact of the Cisco ONE Software pricing model on customers.

Cisco ONE Software pricing model financial impact
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For Cisco customers, the process of buying network infrastructure has always been to buy a device and pay a bundled price for hardware and software. This means in year zero (at purchase time), customers need to lay out a huge chunk of money to pay for the products. Then the customer would use the products for anywhere from two to seven years, depending on what it is, and then go through the same process at refresh time.

This traditional pricing model is something we have all become accustomed to, but it does some have some challenges, including the following:

  • Complexity of managing and ordering licenses. Many companies have to buy, manage, and upgrade hundreds or even thousands of individual software licenses. This is one reason why ZK Research data shows that large organizations often run over 30 different software images across the network (disclosure: I am an employee of ZK Research). Also, the broad range of software features are typically sold a la carte, meaning customers must determine the right set of features for every device in the network. This leads to inconsistent features, which can result in problems down the road when trying to set security policies or optimize applications.
  • Lack of software agility. With traditional pricing, each device has its own software license, meaning the software is not portable at all. If the hardware is upgraded, new software needs to be purchased. Many customers ZK Research have interviewed say that they often delay upgrades because of the cost but are concerned with missing out on new business opportunities.
  • Lumpy spending patterns. The periodic refresh of network infrastructure leads to spikes in capital expenditure. The lumpy spending patterns make budgeting difficult and the network spend can be highly inconsistent from year to year.

Cisco recently introduced a new way to purchase network infrastructure with a model called "Cisco ONE Software." The pricing model is a flexible way for customers to buy infrastructure. Cisco ONE Software decouples the acquisition of the software from the underlying hardware platform, which has the three distinct advantages over traditional purchasing models: 

  • Better together pricing: Cisco ONE Software offers a suite of software features that are simple to purchase and designed to address the most relevant use cases in the data center, WAN, and access edge. Examples of these use cases are unified access, intelligent WAN, and next-generation branch. The foundation provides a consistent set of functionality across the network.
  • License portability: The purchasing model reduces network refresh costs by making the software licenses portable to the new hardware. At refresh time the customer only pays for the hardware and the software license transfers.
  • Access to on-going innovation: Cisco ONE Software gives customers access to software upgrades and new software features that support the evolution in the data center, cloud, WAN, and access edge.

The pricing model is available in three different feature sets: Foundation, Advanced Applications, and Advanced Security. I’m not going to cover the details of each feature set, but if you’re interested the particulars can be found here.

This table illustrates the value of Cisco ONE Software Foundation bundle versus what a customer would get with traditional purchasing for the WAN. 

092515 cisco chart Zeus Kerravala

The feature bundles for access and data center have a similar value proposition to the WAN bundle.

The feature bundles are certainly an advantage but the new pricing model must also save the customer money. To demonstrate the economic value of Cisco ONE Software in the WAN, I’ll use a 50-site network. Typically, most customers refresh the WAN on a five-year cycle. The price comparison has been extended through one full replacement cycle. The model also assumes a scenario where the customer adds a new WAN feature or application in years 1, 3, and 5. An example of a new feature is Cisco’s Intelligent WAN (IWAN) application. The average cost of new WAN features is $600 per device or $30,000 for all 50 devices.

092515 cisco chart 2 Zeus Kerravala

In Year 0, Cisco ONE Software is at a slight premium, but in every subsequent year, it provides savings. The cumulative spend over the six years (Year zero plus the next five) for Cisco ONE Software is $2,815,000 for the 50 locations, a 10.15% savings over the $3,100,700 for the traditional pricing model. The license portability significantly lowers the cost of refresh because the same Cisco ONE licenses can be ported to the new hardware.

I ran similar scenarios for the data center and access edge: 

092515 cisco chart 3 Zeus Kerravala

In every scenario, the Cisco ONE software model realizes a double-digit savings over the traditional "a la carte" pricing model.

The purchasing of network hardware and software can be a painful process at product refresh time, but Cisco ONE Software is designed to take much of the sting out of it. I recommend that any customer that uses Cisco in the WAN, data center or access edge, which is the majority of companies, take a serious look at shifting purchasing to Cisco ONE Software.

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