Yours truly asked Mike Sheldon - the President of UNEDA (United Network Equipment Dealer Association) for a UNEDA response to the recent ChannelWeb slide show feature:
Gray's Anatomy: Dissecting A $58 Billion Market
In their official response below, UNEDA takes issue with lumping the Cisco secondary market into the Cisco gray market:
 UNEDA is pleased to see AGMA’s most recent KPMG white paper addressing counterfeit in the IT industry, but based on the data shown on ChannelWeb and the executive summary posted on AGMA’s site, UNEDA feels the white paper would be more comprehensive and meaningful if “gray market” and “counterfeit” were treated separately. |
To begin, it is important to distinguish the gray market from the secondary market—the two markets are not the same, no matter what AGMA (aka Cisco) would want everyone to think.
For anyone who takes exception to this, you only have to look as far as seeing the data from this white paper which offers no separation between the two markets.
Furthermore, AGMA defines the gray market as:
"The Gray Market is the unauthorized sale of new, branded products diverted from authorized distribution channels or imported into a country for sale without the consent or knowledge of the manufacturer."
"It is the unauthorized sale or improper diversion of new products obtained under deceptive circumstances."
Clearly, the deceptive resale of new products described above is not the same as the ethical resale of pre-owned equipment as is the raison d’etre of the secondary market.
It is unclear whether the KMPG white paper distinguished the resale of used equipment from that of unused equipment.
The majority of secondary market sales involve used and/or refurbished equipment, and top-tier independent resellers openly proclaim the status of products to avoid any confusion.
Secondary market resellers do on occasion receive new-surplus inventory from channel partners and end-users, but, again, leading independent resellers market this equipment openly as new-surplus and clearly claim no support from the manufacturer.
To lump ethical secondary market sales in with deceptive gray- and black- market activities clouds a much-needed analysis on the serious issues surrounding counterfeit abatement.
Where is counterfeit coming from?
UNEDA members have been vocal critics of IT hardware manufacturers letting suspicious resellers routinely post wares for sale on auction sites such as eBay and Alibaba.
Of the 17 percent of vendors that have received counterfeit products from a gray market source, according to the KPMG white paper, it would be interesting to learn where they found the equipment.
Search for Cisco equipment on any online auction and you will quickly find many “new” items at huge discounts available from “Cisco partners” in China, often with dubious packaging notes such as “bulk packaging.”
All signs point to counterfeit, but these providers are as plentiful as ever, and, no doubt, the source of much of the 17 percent in question.
Sixty-three percent of channel partners, identified as resellers, system integrators, retailers and distributors in the white paper, receive offers for gray market products...
UNEDA members sell to many manufacturer channel partners, so we aren’t surprised to learn that 63-percent receive offers for “gray market” products.
Many UNEDA members have long relationships with channel partners and become trusted resources for used equipment.
An integrator’s primary business is to provide IT solutions for its customers.
When a customer needs end-of-life equipment, inexpensive spares or affordable maintenance to support their IT infrastructure, integrators need alternate sources.
The secondary market will never replace an OEM, but there are times that it is the right solution for the client.
To protect the end customer, UNEDA does encourage channel partners to research secondary market providers and develop relationships with established companies.
Like any market, and even the channel itself, the secondary market is populated by companies of varying quality, so taking the time to research and evaluate a source is always a smart course of action.
Missing the bigger issue...
What is largely missing in this white paper--and often is obscured by talk of margins and brand protection--is the customer.
Slide No. 3 notes that vendors feel the gray market’s biggest impact is customer satisfaction and profit.
The white paper offers many conclusions about channel partner policy, tightening procedures and enforcing guidelines, but it misses the larger issue:
What do customers want and how can the market best satisfy that demand?
Market forces demand a secondary market – companies want to buy at a lower cost and recoup value in surplus equipment.
For manufacturers to be truly effective in protecting their brand, they must respond to this demand rather than ask customers to abstain from a practice that is beneficial to them.
Manufacturers need to engage the secondary market with more than halfhearted marketing and begrudging relicensing policies designed more to deter than encourage participation.
Continuing to focus on the elimination of the “gray” market through restrictive channel policies and propagating fear against outside resellers has been proven ineffective.
Recently, Operation Cisco Raider highlighted this issue as Cisco channel partners were found to have purchased and resold counterfeit equipment to the Department of Defense.
OEMs must understand that their partners are driven by the customers’ needs.
Ignoring online counterfeit sources and the need for education on counterfeit detection, in favor of tighter channel policies, ultimately hurts the customer.
Some statistics seem deflated...
According to KPMG, the data was collected from a relatively small group of 198 respondents, representing OEMs, channel partners and brokers.
Given this sample, data could easily be skewed, but we would have expected different results in terms of delivery and price.
We would expect to see more next-day delivery (Slide No. 15), if respondents were buying from top-tier secondary market sources.
Leading providers typically inventory as many unique products as Cisco’s own refurbished program, so next-day delivery is not uncommon.
We would also expect discount ranges to regularly exceed 50 percent (Slide No. 14) for refurbished equipment, assuming that is included in this white paper.
Do YOU agree with UNEDA that the ethical resale of pre-owned equipment (Cisco secondary market) is not the same as the deceptive resale of new products (Cisco gray market)?
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Brad Reese cofounded BradReese.Com Cisco Refurbished which offers one year warranties on Cisco Refurbished and Cisco Repair.
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Yep
Sure, I agree there should be a legal secondary market for used network equipment. From Cisco and everyone else.
The trouble is distinguishing between the secondary and gray markets. It can be tricky or impossible at times. Cisco probably feels it's easier to just lump them all into one, and go after both.
I would encourage Cisco to come up with a "Cisco Authorized Secondary Distributor" program, or something similar. This would ensure used items could be resold, legally, while drawing a hard and fast line between legal and illegal used goods.
Cisco already has a refurb/used distribution. But it wouldn't hurt to create a program and open that up to a little competition.
--cheers
Propaganda?
Cisco's Factory Refurbished Equipment is just another way for them to cash in. The discounts aren't as great as Cisco would like for the customers to believe since they base it all off of "list" pricing and not "market" pricing. This is one reason customers seek out the secondary market. Customers keep coming back to Secondary Market Resellers because of the CUSTOMER SERVICE aspect of the business. (for the most part) Cisco's account managers are incented to sell & suggest only the "latest & greatest" hardware solutions. That's great for their quotas but bad for the pocket book of the end user. The "reseller" has the ability to offer up a solution that meets/exceeds the customer's needs -- no matter how "old" the technology is. Why sell a CISCO2811 for $1600 + when the customer BARELY needs a CISCO2621XM that costs $295? Shouldn't be about making the CUSTOMER the priority, not always about who can make the most money this month? In a perfect world, yes it should. But if you take care of a customer, they'll be back. Cisco has left a sour taste in the mouths of more of my customers than I can count on 2 hands and 2 feet. That says a lot. Of course Cisco doesn't want to lose MORE business to resellers. *Kindest Regards*
Of Course
Of course Cisco wants you to buy the latest and greatest. New car dealerships will steer you toward a 08-09 model over a 99-2000.
Microsoft wants you to buy Vista, even though you really only need Windows 98.
Can't fault Cisco for that.
Furthermore, Cisco may lose money in the short term, but by creating an authorized secondary reseller program, they create additional market share and opportunities they might not have had before. Market share = $$$.
It's more complicated than just the initial cost of product.
Cisco wants resellers gone
Cisco isn't interested in gaining more resellers, secondary or authorized. Their actions towards their own premier and registered partners is proof of that. Cisco has used their partners to build their client base. Now that they own 70% of the switch market dont need them. Cisco is giving larger discounts to Gold partners to weed out the smaller partners. I know many partners who have had the rug pulled out from under them by Cisco only to see their long time customers new integration go to a larger partner who got a price deviation 5 points higher than the smaller partner. Cisco is actively trying to reduce the number of partners.
Car dealerships. Not a real good analogy huh? Considering that car dealersship also sell USED or Preowned cars and actively try to sell them. Cisco doesnt try to sell Cisco Factory Refurbished nor do they encourage it. Ask any CAM (Cisco account manager) if his quota is based upon how many Cisco Authorized products he sells?
The fact that cisco says that "selling used cisco is unathorized" is a load of crap. Your car has software loaded on it? Is it illegal for you to resell your car the day after you buy it or 5 years later? What about your PC with Vista on it since you mention that? Can't you sell that after you bought it? I dont see Microsoft FUD'ing PC resellers.
This is just another smear campaign against Uneda and other legitiamte resellers of Used/Preowned hardware that Cisco is propagating to erase the line between legit resellers and those dealing in counterfiets.
Maybe if Cisco would have their product manufactuered here in the USA they wouldn't have to worry about the 3rd shift at their AUTHORIZED manufacturer in China making counterfiets.
Just a thought.
Rock on UNEDA!
"Resellers Unite" Can't be more right
Thank you for your comments, I couldn't agree more.
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