Cisco Takes Issue

In a report unveiled at the Gartner Symposium/ITxpo 2002 here last week, Gartner Vice President and Research Director Mark Fabbi said the premium paid for Cisco gear rose to 72 percent in the first half of this year, up from 22 percent in the first half of 2001.

Cisco solution providers defended Cisco's pricing but were concerned about the impact of the report.

"It's going to have a very chilling effect," said Bob Norton, vice president of Select, a Westwood, Mass.-based enterprise solution provider. "I'm convinced Cisco product is worth the price, but this report may create the perception that Cisco is price gouging. There may be less expensive alternatives, but in

the end, you get what you pay for. Nobody accuses Porsche or Lexus of price gouging."

Ken McKinnon, president and CEO of Planetary Networks, a Sunnyvale, Calif., solution provider, said price is never at the top of the list of customer concerns. "Customers are shopping for solutions that address business needs," he said. "You can't overlook the features and benefits of an end-to-end solution."

McKinnon added that Cisco hardware is "the gold standard" in the networking business. "There is a reason why Cisco is a market leader. Their products are tried and true. They work," he said.

Other solution providers suggested the pricing premium has less to do with Cisco than with competitors trying to grab market share in a down market. Foundry Networks and Extreme Networks both are offering substantial discounts to win deals, solution providers said.

Michael Fong, CEO of Tempe, Ariz.-based solution provider Calence, questioned Gartner's numbers. "Was it an apples-to-apples comparison? If there were that material of a difference in price, I would expect to see a massive shift to other vendors," he said. "And from what I've seen, Cisco is gaining market share, not losing it."

For his part, Cisco CEO and President John Chambers said he doesn't believe the gap has risen to 72 percent. Nevertheless, Chambers said, price is not customers' top priority.

Gartner's Fabbi said the report on Cisco pricing was based on comparisons of the unit volume and revenue generated by Cisco on switching gear. He said the analysis is not based on list pricing but rather on actual deals negotiated with Cisco.

Fabbi, who takes hundreds of calls on Cisco pricing from Gartner clients, said the analysis involved Cisco vs. other vendors including Nortel, Extreme, Foundry, Enterasys, Alcatel, Avaya, 3Com and Hewlett-Packard.

"Unless enterprises start saying no, Cisco is going to demand more and more," Fabbi said. "Cisco has such tremendous influence, they don't get questioned. The solution is simple: Enterprises must go back to looking at competitive alternatives. If they don't do that, 72 percent is going to be 100 percent in six months."

Chambers said Cisco has the best customer satisfaction rating in the IT industry. "Out of the surveys we did of all of our customers on price/performance evaluation, 91 percent of the people that responded felt that we charged a 'fair to very fair' price," he said last week in a question-and-answer session at the Gartner Symposium.