Users Label Cisco’s Pricing Proposal a Money Grab

Users could end up paying more for Cisco gear if the networking giant unbundles network software from its hardware platforms.

Customers have been quick to voice their concerns after Cisco CEO and Chairman John Chambers floated the idea of decoupling the sale of IOS software, network hardware and SMARTnet maintenance contracts earlier this month.

By breaking software out as a separate item, Chambers said customers would have a clearer idea of what software they’re buying and have more options for mixing services with hardware and software. The idea comes as the company continues its push to become more focused on the applications riding on top of the network pipes and plumbing the vendor supplies.

“More than half of our engineers are software engineers, yet we sell [software] like a hardware product,” Chambers said. “Whereas all the major software companies in the world charge major amounts for upgrades and regular things, and customers don’t even blink about that in terms of the upgrades.”

While IOS is basically free as part of the router cost, users pay 12 percent to 15 percent of the cost of the hardware on an annual basis for a SMARTnet support contract, which provides support, equipment replacement, software bug fixes and upgrades.

“I wouldn’t be a big fan of it,” Tweed Shire Council network administrator Chris Peate said. “The base license serves our purposes well, and getting slugged for the advanced license is [already] a concern.”

Peate said the good thing about buying network appliances is customers don’t have to worry about adding on software.

“When paying separate fees, even if they are the same cost, there is more complexity,” Peate said. “With one warranty, if there is a hardware fault it’s under the same umbrella.”

He disagreed with Cisco’s claims that customers get confused by maintenance and software upgrades being lumped in the same category.

According to Peate, the options, at least for software, would be just as limited or worse because “there wouldn’t be an alternative” to Cisco.

“We purchased the base license and found we wanted a particular feature in the advanced license, but it was only one feature,” he said. “If it was split across three areas, it might be a good thing. But users wanting a multifunctional approach might get burnt, so it could go either way.”

Salvation Army IT manager Larry Reed was cynical about Cisco’s motives.

“I can’t see any benefit from a user perspective,” Reed said. “When you think of Cisco you think of a hardware company, and software is just an enabler.”

Reed said because of Cisco’s dominance, it is in a position to initially force the idea on end users, but there may be a backlash if there is a perception this is just another money grab.

“I’d like to have the choice both ways,” to combine software with maintenance and hardware or to separate them, said Bruce Politzer, corporate network consultant for Goodyear Tire and Rubber Company, who manages hundreds of Cisco routers across the company’s WAN. “In some sites, I’d like to just stick something in and let it run forever,” he said. “In other sites, I want to be on the leading edge, and I need to deploy new features constantly.”

With Cisco’s current model, any device that gets a licensed, supported IOS version includes a slew of services and support extras that may not be necessary, Politzer said. “I may not [want] to buy a whole line of services just to have IOS,” he said.

But Forrester Research senior analyst Robert Whiteley said Cisco is right: The company needs to evolve its software model.

Whiteley said the ubiquity of IOS, the myriad features it supports, and the fact the software is basically thrown in for free when users buy routers with support contracts all add up to a sometimes confusing pricing model.

“There is a lot of value locked up in [IOS],” Whiteley said. “I don’t want to say it’s money on the table [for Cisco], but as network products become more intelligent, that means IOS becomes a more valuable asset. So decoupling that makes sense for Cisco.”

-Rodney Gedda, Computerworld Today (Australia)

(Phil Hochmuth of Network World (US) contributed to this story)

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