Cisco! The future is about footprint and the secondary market can help!

Cisco is facing competition like never before, and its time for the giant to embrace the secondary market for its products before its competitors - and especially Huawei - gain momentum.

Cisco!  You know the future is all about footprint…  and we can help!

Does Cisco understand the battle that it is just beginning to fight? With so many competitors nipping at the heels of its monopoly, now is the time for Cisco to protect its most valuable strategic asset–a 70 percent market share – and the secondary market can help.

For the first time in its modern existence, Cisco has real competition in the routing and switching market. Cisco is facing pressure on both margins and revenues as HP, Juniper, Arista, Force10, Brocade and others continue to evolve and capture niches like the education market or datacenter switching or carrier routing. This alone would be scary enough and the attention that analysts, pundits and Cisco itself are paying to this issue is evidence of that fact. But–and it’s a big but–there is another player preparing to aggressively enter the U.S. market, one that has received little press coverage, but its entrance will spell more problems for Cisco than the rest of these vendors put together – that competitor is Huawei.

Huawei has grown in the last five years the way Cisco grew in the late 1990s. Huawei had over $28 billion in global sales in 2010 with only 35 percent of that coming from domestic China, and international sales grew 35% in a single year.. Most importantly, almost none of that revenue was derived from the U.S.  A full-scale assault of the U.S. market seems poised to begin and if Huawei’s success internationally is any guide, its products will be significantly cheaper, yet well designed and backed by the aggressive financing that only a Chinese company can offer can in our current world.

What should this mean to Cisco? Is it time to circle the wagons? Yes. But not around itself as Cisco seems to be doing–it’s time to embrace its customers and the secondary market for its equipment.

As most analysts will tell you, success in the core networking market is all about footprint– the manufacturer chosen and the equipment used is sticky and long-lived. Over time, all the high-margin maintenance revenue, hardware and software upgrades as well as professional services more than double the initial take for the OEM.  Yet lose a fork-lift upgrade to a competitor and the revenue stream enjoyed by Cisco for more than a decade stops immediately–and not just this year, but potentially forever.

So how does the secondary market for Cisco equipment even figure in this equation?  

·         A vibrant secondary market supports Cisco’s high residual values, leading to less expensive TCO for Cisco equipment compared to almost every rival.

·         We offer an inexpensive entry point into Cisco for consumers who are increasingly being tempted by Cisco’s lower priced rivals.

·         We are a vast secondary supply chain for customers whose needs cannot be met by Ingram, Tech Data, et al. The secondary market offers legacy equipment and legacy equipment maintenance at realistic prices, greatly increasing the customers’ options and lowering costs.

In the past, these “benefits” were viewed as competitive threats by Cisco. Cisco has repeatedly said, quite famously in secondary market circles, that their biggest competitor is not Juniper but the secondary market for its own products. Now it is time to abandon that stance and work together.

Customers all over the world are frustrated with Cisco’s licensing and re-certification policies, which are clearly designed to prevent the re-use of Cisco equipment rather than encourage it. SMARTnet maintenance is very difficult and costly to procure on any item not continuously maintained from purchase. Software updates, critical on many devices, are tied to SMARTnet too and so are practically unavailable to many Cisco users.

These policies prevent some from using Cisco products, which forces them into the arms of Extreme, HP, et al. Fundamentally, my point is this: for years, those of us in the secondary market have often “competed” with a Cisco VAR for a hardware deal, but of late we are increasingly competing with a VAR offering a Juniper or Force10 solution – and soon it will be Huawei. If we lose, Cisco loses far more than the secondary market does. While we may lose a deal, but Cisco loses a customer, perhaps forever.

The $2 billion-plus market for used Cisco equipment fundamentally combats the biggest existing threat to Cisco–erosion of market share. We would like to work more closely with Cisco, and work toward more benevolent policies around the licensing of legacy hardware and maintenance that make sense for today’s customers. We both have a lot to gain. Cisco has the most to lose.

Copyright © 2011 IDG Communications, Inc.

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