How Much More Expensive is Cisco?

Cisco hits back at critics with a new total cost of ownership metric, yes they admit they are more expensive, but not as expensive as you might think.

By Sean Michael Kerner | Posted Oct 10, 2011
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There is notion out in the marketplace that Cisco networking equipment is significantly more expensive than buying similar gear from other vendors like HP. According to Cisco, that's not the truth.

Cisco is out this week with a new model for enterprises to calculate the Total Cost of Ownership (TCO) of networking equipment. The new model shows that while Cisco might be more expensive from a capital expenditure perspective, the numbers change from a TCO perspective.

Ross Fowler, VP for Cisco Borderless Networks explained to InternetNews.com that Cisco's new TCO model divides total cost of ownership into a modular approach. The TCO model was developed working with a management consulting firm that Fowler declined to identify. The management consulting firm developed the model in part by way of customer interviews to understand real world costs of implementation and ownership.

"TCO is a better metric than CAPEX to assess network costs," Fowler said.

Fowler noted that the TCO number should include the upfront capital expenditure (CAPEX), services, the labor required to operate and maintain the network, and the power consumption.

"One of the challenges that many of our customers have is that it's very difficult to bring all these factors into the original procurement conversation as procurement people are often reward on purely CAPEX savings," Fowler said.

Doing an examination of TCO over a five year period, Cisco's analysis found that their costs were competitive with those from rival HP.

"Over a five year period we did have a premium over HP, but that came out at 4 percent," Fowler said. "Even though HP are out there in the marketplace saying they are between 30 and 50 percent cheaper than Cisco. "

HP was unable to provide a comment to InternetNews.com by press time about their position relative to Cisco's costs.

Fowler admitted that on a CAPEX viewpoint, Cisco is 25 to 30 percent more expensive. That said, the TCO view, provides a broader perspective on costs. The key driver of the lower Cisco cost over time is the cost of labor.

According to Cisco, labor costs within an enterprise can account for us much as half of the total cost of ownership of a network.

"Our architectural and network management capabilities reduced the labor costs compared to an HP network by between five and 10 percent," Fowler said.

The labor savings come from Cisco having a single access policy platform for managing wired, wireless and remote users. Cisco's Trustsec Context aware security is also seen by Cisco's management consultants as being a way to lower labor costs.

"We now also have Cisco Prime management which saves labor in managing software and deploying services across the network," Fowler said. "To be frank many of these architectural capabilities have only been delivered as part of our borderless network architecture over the last year."

Cisco Prime was announced in April of this year as a holistic network manager that can manage both wired and wireless network assets.

Fowler admitted that in the past, Cisco's network management tools were not ideal.

"If you go back a few years our network management capabilities were pretty bad," Fowler said. "We've made remarkable progress and now for our routing, switching, wireless and security portfolios, management and the automation of tools are absolutely crucial to being able to warrant a premium for the up-front product."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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