Don't sniff at used network gear, dealers say

UNEDA members at Interop call aftermarket legitimate, regulated

While many among the 400 exhibitors at Interop this week trotted out new network gear, members of UNEDA would rather talk about the old stuff. The United Network Equipment Dealer's Association, a group of used-equipment resellers, held its second annual conference in Las Vegas the weekend before Interop. UNEDA board members, including its president, Network Hardware Resale CEO Mike Sheldon, Gillian Canty-Ross, co-owner of Subspace Communications, John Stafford, president, Network Liquidators, and Omar Beyhum, manager of Smith & Associates, spoke with Network World editors Phil Hochmuth and Michael Cooney about the state of the market for used network gear, and how UNEDA is looking to change perceptions about the aftermarket for Cisco and other network hardware products.

Read our story about Cisco  countering used-gear competitors.

What are some top issues facing UNEDA and its members?

Canty-Ross: Right now we're focusing a lot on counterfeiting [of network equipment]. Because it affects the market and it affects us all. It affects end users, the dealers, it screws up the market. We've started a counterfeit task force which is aimed at helping our members help themselves in detecting counterfeit equipment. [The program] will have pictures, equipment descriptions, bad solder points — basic information and education. It's not just for UNEDA members, but for customers, for Cisco's [value-added resellers].

Sheldon:[Counterfeiting] is the main issue that Cisco has painted [used equipment resellers] with recently. It's the one they're trying to use against us. Counterfeits were a much bigger issue in 2003 than they are now. But Cisco is using it now against us, so we have to play a little bit of defense now.

Beyhum: Three years ago, people weren't as educated as now and they didn't really know there were that many counterfeits. Because of the story in the press lately … they're watching out for it. Some UNEDA members [do] work with law enforcement.

Sheldon: We have a pretty good relationships with REACT [Rapid Enforcement Allied Computer Team Task Force — a San Jose-based partnership of 16 local, state and federal agencies focused on computer-related crimes such as theft, counterfeiting and trademark violations.… They help us a lot with stolen goods. They're also an interface for us with Cisco. Cisco, today, is not terribly willing to interface with us, even on the issues of counterfeiting. So we'll go through REACT and ask questions, and they've been very responsive. We've done a lot of stolen-goods recovery with them, hundreds and hundreds of pieces. They recognize our power, because the Cisco community is a pretty tight-knit group.

Is theft and counterfeiting a problem with used equipment from other vendors?

Stafford: Theft is a problem for everybody, but there is not a big market for non-Cisco products, especially the random stuff you might pull out of a warehouse. Cisco is the 800-pound gorilla. … So if you are an organized crime ring — which there are in all kinds of theft — it becomes pretty obvious when you steal a bunch of boxes of Riverstone, and no one will buy them. Whereas you steal a bunch of boxes of Cisco and there's people paying good dollars for it.

How does UNEDA organize used equipment resellers?

Sheldon: The membership is brutal. If someone is screwing around, everybody knows in 15 minutes. If someone is not paying someone on time, or dealing in counterfeit, or making bogus claims, reneging on [purchase orders] — anything that might affect two dealers. UNEDA members can post these activities to a public forum.

That's why we were formed. We were formed to regulate trade, and to educate. UNEDA was formed because we recognized the community is big enough that we just wanted things to be standardized, and cleaner and simpler and it's worked well.

Beyhum: We have a pretty good ethics document and everyone has to adhere to the ethics document. But if you violate an ethics rule, then we can take action. Everyone is watching each other and themselves. [Used equipment vendors] really wanted a community. They wanted to donate funds and resources so we could have one face to the world.

Canty-Ross: All of our companies have very strict testing policies in place for equipment. We have a very strong moral code and ethics code. So you're not dealing with some fly-by-night e-Bay company. You're dealing with professionals.

What should enterprise IT professionals know about the aftermarket for Cisco and other network gear?

Sheldon: Main thing we'd probably want them to know is that what they've probably heard isn't true. It's hard for any one company to get the word out. You don't have to buy it new to trust it. It comes with a warranty. It's available quicker than from Cisco. [Used equipment dealers] can usually get gear within 24 to 48 hours, almost anything, and not just Cisco — Juniper, Redback, Foundry, Nortel. You have a market place where you can vibrantly buy and sell back and forth, trade in juniper to buy Cisco, foundry to buy Juniper.

Wouldn’t an enterprise be better off paying more for new equipment to receive technical support and service?

Sheldon: On the real-world technical support the secondary market brings, any one of us probably touches more equipment in a day, than the CCIE — even at Cisco Level-3 Technical Assistance Center — touches in a year. Because that's all we do. Everything we sell is tested. Everything we sell is thoroughly inspected. If you buy a system from us, you get a fully installed, fully functional, tested system. You don’t' get 18 boxes, that you're then sifting through, looking for this cable or that card. And showing up three weeks apart, 10 weeks after you order it.

Canty-Ross: CCIE's and CCNA, they have a lot of book smarts, but in terms of practical experience, a lot of them don't — and I'm not saying all of them — but some don't have the real-world experience.

Beyhum: Cisco is not able to satisfy all of its customers … We know that in the next year or two we're going to get hundreds of Cisco partners and end-users wanting to get involved in this market. And that's why we're spending so much time to make UNEDA viable and professional, so that we can make it a stamp of good housekeeping, so that end-users will come to us.

What is UNEDA's relationship with Cisco channel partners?

Sheldon: They are customers and suppliers. We are their safety net. Cisco is not terribly generous if you lose an order with a customer. You end up with $250,000 worth of equipment sitting in your warehouse and you can't return it. So who do you sell it to? Or when a customer needs a part that went end-of-sale three years ago? We'd love to buy more equipment from VARs. From some we do, from some we don't. We would love to sell more equipment to them.

Canty-Ross: We've bailed enterprise users out of a lot of predicaments. Sometimes you have that emergency install. You never know, say, when that T-1 is going to come in from Verizon. Suddenly, it's like, oh god, I need a card to plug this into … Also, you have the burn-in factor as well [with used network equipment]. If the equipment is going to fail. It's going to fail out of the box within the first 30 days, generally speaking.

What types of people test, refurbish, support and install the used equipment you sell? Where do you draw your talent pool from?

Sheldon: We get them from the same talent pool a Cisco VAR would. Colleges and universities typically now have CCNA programs. Devry [University, the online technical college] has a Cisco program. Then the more senior guys, our senior tech for example [at Network Hardware Resale], used to work for Verizon. We took him from the industry.

Why do you think Cisco does not work with secondary market resellers, either in terms of partnering for authorized refurbished equipment, support, or in enforcing counterfeit products?

Sheldon: They want to protect their channel. And that's valid. But there's no reason why they can't have a refurb partner program. You might agree to certain terms and conditions. Maybe [Cisco] authorizes us to inspect gear, but puts a little bit of the warranty risk on us. If it fails in the first 30 days, it's on the secondary-market reseller.

It's hubris. Sun did it. Microsoft did it. IBM did it. An [IT vendor] gets big and they think they can stomp out the secondary market for their products. Trying to make the residual value of a piece of hardware zero is not going to happen. Because there's always a market for it. Someone always needs it cheaper than new.

Cisco is missing out on probably a $100 million revenue opportunity in selling support on used, re-licensed equipment. Cisco can point to the fact that they have a recertification program, and it doesn’t make money for them. But that's because no one does it, due to its high cost. If they changed one-tenth as much, they'd get 1,000 times more people doing it. We'd love to cooperate with them.

Copyright © 2007 IDG Communications, Inc.

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