CEO of Network Hardware Resale says there’s no stopping the market for used Cisco gear
Mike Sheldon is president and CEO of Network Hardware Resale, one of the largest dealers of used Cisco network gear. His outfit sold more than $138 million in products last year in a market which Cisco estimates to be around $200 million to $300 million — but Sheldon says could be more like a $2 billion-plus market.
Mike Sheldon is president and CEO of Network Hardware Resale, one of the largest dealers of used Cisco network gear. His outfit sold more than $138 million in products last year in a market that Cisco estimates to be around $200 million to $300 million — but Sheldon says could be more like a $2 billion-plus market.
Sheldon spoke with Network World Senior Editor Phil Hochmuth about the state of the used-Cisco market, where customers should and shouldn’t buy used gear, and why he’s Cisco’s biggest fan — even if the feeling isn’t mutual. The following is an edited transcript.
Can you describe what you do and the size and state of the Cisco used-equipment market?
We’re the largest player in the Cisco secondary market. We did about $138 million in sales last year. We’ll grow again about 20% this year. The market is probably in the billions — two-plus billion. There are virtually no public companies in the space, so it’s very hard to get a true read on the size. The market also is quite developed in Europe and Asia. It’s a very sophisticated and professional market. The products we sell are sourced primarily from Cisco’s own customers as well as through a broad network of secondary-market VARs . . . who have connected to buy and sell equipment. We deliver, almost in every case, within 48 hours. Our effective inventory is vastly larger than Cisco’s [suppliers, such as Ingram Micro or Tech Data] . . . Our prices are very good. Obviously, that’s the headline. In general, our prices are about half what Cisco would charge, sometimes higher, or sometimes lower.
How does Cisco view what you do?
[Cisco] does a decent job painting the authenticity and quality of the product as low. I would say that’s simply not the case for companies like Network Hardware that have very large operations. Our facility in Santa Barbara is 80,000 square feet and employs over 100 people who do nothing but receive and inspect and test the equipment. Every piece of gear we touch is physically inspected, which is not true of new equipment. We have rigorous testing methodologies in place to not only ensure it’s authentic — that’s a given — but also that it functions, and basically looks, as new. So the market is healthy and growing. Cisco’s installed base of equipment is probably in the billions of units. But most of that is eventually going to find its way through our market at greatly reduced prices. Unless Cisco were to take it all back, which has its own logistic and economic challenges and which I don’t think they would want to undertake. There’s no stopping the market.
What about the potential pitfalls of buying used network equipment? Are there risks of ending up with a faulty or even counterfeit product?
There’s a lot to be afraid of in any secondary market. We don’t counsel our customers to look at eBay. But NHR and the vast majority of the secondary market has organized itself to not be that . . . to not have that characterization. We provide a great warranty and good equipment that’s been tested and they have nothing to worry about.
Enterprises that buy your products, what type of gear are they buying? Do they use you for spare parts, or are they building whole networks on used Cisco gear?
It spans the mix. One reason customers buy from us is price. It’s no secret that the very largest of Cisco customers get very good prices, whereas most enterprise and small businesses don’t get as good prices. The type of product that’s bought varies based on the customer.
Most SMBs and enterprises buy from us because they don’t need the latest and greatest. If they’re using a T-1, they don’t need a router capable of handling an OC-12 circuit. They can get what was a $10,000 router five year ago, from us for 800 bucks. For other products, such as security, they probably want the newest stuff; to be very honest, we counsel customers all the time to buy certain products from Cisco. We can usually get them, often not at a good price.
For some customers, they just want more of what they’ve got. They’ve bought a bunch of switches two years ago — the Catalyst 3550 series is a good example. Cisco came out with them, and then made them end-of-sale in 12 months. But a lot of people bought them,because they are a really good switch. We sell hundreds of those a month, because people have standardized on it, and they want spares. It’s no secret the maintenance is expensive. If you have 10 of the same switch, you can maintain all 10 [with support services], or you can just buy one more.
How does support work with your products? And what about a customer that might have some products under SMARTnet contracts, and some products that are used? Are there ever issues with having that mixed-support model?
Everything we sell comes with a one-year warranty that includes next-business-day replacement. We’ll extend that warranty to as long as they want for a fraction of the cost of SMARTnet — two, five, 10 years or whatever works for the customer. We do that with spares, because if you buy a spare and buy a five-year warranty, you’re basically done forever. SMARTnet typically covers what the customer is using inside a given chassis. Historically, Cisco will provide technical support for what’s in a given covered chassis. We’ve never seen a problem between the two support models.
Have you noticed Cisco become more aggressive in keeping customers from coming to resellers such as yourself?
We’ve heard the rhetoric for many years. . . . There’s probably been an increase in rhetoric from Cisco. I think they’re realizing, or trying to come to terms with, the competition the secondary market is providing. I would love to sit down with Cisco and work on a way we could formally cooperate. We sell Cisco’s product, and we love Cisco’s product, as do our customers. So you’d think, fundamentally, we’re on the same team. I think.
Have you ever approached Cisco with that idea?
We’re interested in selling more equipment, and the best way for us to do that would be to sell new and used equipment. But that’s been a nonstarter with Cisco. And it’s understandable why: They want their new VARs selling new. What I would be interested in talking to them about is their recertification program, which really doesn’t work for us. And that’s where I’d like to work with them most. I’m not sure it was designed to work with us, I think it was designed as a tool to prevent customers from working with us. But it could be great. We’re selling Cisco’s products, our customers want to buy their products. There should be a way to make that make economic sense. By working better with the secondary market, they’re only going to increase the value of their equipment in the secondary market, which increases the value of their brand. If the fee structure for resale and reregistering of maintenance of secondary equipment made more sense, they’d be getting a huge amount of revenue from recertification fees and maintenance. As it is, the fees don’t make a lot of sense. It’s not uncommon for a customer buying a $50,000 system to be faced with $25,000 in fees to recertify and reregister the products.
