Defense Against the Cartel: Cisco in Plain View

Dave Young
May. 14,2013 |

Recounting the news earlier this year out of West Virginia where state auditors are accusing Cisco of selling routers that are not needed or router models that are way overkill for the purpose, got me thinking about the approach Cisco and many of its peers in the IT industry take to selling technology to their customers.   Simply put, IT related acquisitions, be it hardware, software or services, are fraught with a cartel mentality between the OEM, reseller and the enterprise IT organization that often result in purchasing more than needed or acquiring advanced functionality without a purpose.

The IT organization shares some of this blame with their desire to try out the latest wiz bang technology, regardless of whether it serves a useful purpose today.  It’s simply human nature to want to stay on top of the latest technology.  In the IT organization, exploring the possibilities in technology can be good for the career and save you from the stress that comes from operations while making things a little more interesting.   At the same time, it is hard to blame IT when they are constantly under the microscope to maintain a high-availability, high performing infrastructure or attempting to keep one step in front of the business to maintain relevance in delivering value to the organization.

Read most online trade magazines or attend many IT trade shows or seminars and you might begin to feel like a technology laggard and experience pressure to adopt technologies before they are fully baked or without a defined operational or business need in the organization. You could also see the possibilities the technology presents and, by your desire to create value, move a step ahead of your business and peers to create a competitive edge.   Regardless, IT opinions on supplier technology are often shaped by the suppliers themselves.  Unfortunately, suppliers have only their best interest in mind - to sell more of their products and services at the greatest scope and highest margin possible to their customers.

Add to this equation the OEM channel partners and resellers.  While sometimes representing multiple supplier options in the technology domain, such as servers, storage or networking, more often than not they are beholden to a single supplier.   This relationship with the supplier will result in motivation to sell as much as possible to their customers, including professional services, regardless of the defined customer needs.  Cynical?  Perhaps.  There will always be good people selling technology to good people, but the incentives are at cross purposes between the parties.  The results are at the expense of the IT customer.   It is often difficult to obtain unbiased information about suppliers and their technology, since most of the information comes from the IT suppliers, product reviewers that have their own supplier and technology biases or research firms that accept revenue for research services from IT organizations and technology suppliers alike, calling into question their impartiality.

This brings me back to Cisco.  They are easy to pick on because they own one of the highest margins in the business.   Cisco’s existential crisis notwithstanding (e.g. software defined networking), they still have a tremendous amount of market share in the networking and communications space, with router and switches making up 60% or more of the market share.   This market power fuels the cartel that results in sub-optimized acquisitions by IT.

Common examples of buying more than required networking technology include router or switches with performance characteristics or feature sets that will never be tested within the life of the product, or hardware maintenance agreements, such as SMARTnet, that cover hardware replacement and software updates that are not properly aligned with the actual business risks.    Cisco is not alone in this, but they wield tremendous influence in IT that extends to VoIP, collaboration, servers and video conferencing with a vision of a single supplier solution.

All technology acquisitions should be fully informed transactions that are subject to a rigorous rationalization to ensure the right technology is being purchased at the right time, from the right supplier and at the best value for the money.  Interestingly, with Cisco’s recent earnings reports, despite recent growth in top line and bottom line, it becomes clear that they are subject to episodic purchases, not so much on recurring contracts.  So when businesses stop to rationalize the need for new technology or decide to extend the life of existing equipment, they are hurting companies like Cisco and improving their bottom line by maximizing their investments in technology.

The end of the Cisco fiscal year, July 31, is fast approaching.  There is no better time to assess your plans for technology refresh or new projects that require technology investments that might involve Cisco than right now.   Despite their impressive entrenched base of networking hardware in the enterprise, there is strong competition across all of their products lines.   Enterprises armed with unbiased information on the strengths and weaknesses of Cisco and their competition, combined with the willingness to investigate alternative suppliers and carefully rationalize technology purposes, will be on the winning end of the IT acquisition.

NET(net) is in the business of helping our clients make informed and fully optimized, high valued IT related acquisitions.  With our Federated Market Intelligence and over 15,000 supplier engagements, returning over $100B in value to our clients over our 10 year history, we have the experience and history of performance to serve as an unbiased client advocate when dealing with the suppliers.   Put us in your corner and together we have a fighting chance to break the cartel and deliver the value your organization deserves.

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