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Cisco Networks And The Three Blind Myths! Myth #2: Cost

Following the myth-busting thread initiated by my prior post on network complexity, let’s next take a closer look at network-related costs. Specifically, let’s shed some light on a second frequently cited myth about Cisco  -- our solutions cost more.

First, let’s establish that price does not equal cost. Price is the initial cost of purchasing a product. Cost includes not only this initial purchase price, but also all the expenses associated with owning and operating the product. My contention: Cisco solutions cost less.

COST

I used the car-buying analogy in my myth-busting Complexity post and it applies nicely here as well. You purchase a new car at a certain price — usually, one that is arrived at after a series of rather painful exchanges between you and the dealer! Does the cost of that new car end there? Certainly not. Just to get it on the road, you must insure it; register it; have it inspected; and maybe even pay a sales tax. Now that you can drive the car legally, you must put gas in it. You must also maintain it to keep it running well. You may need to add more insurance as your kids grow old enough to drive it. You will need to fix it when something breaks. You may need to get it repaired after an accident. (See above note on kids driving your car!) You will need to replace it at some point – hopefully, later rather than sooner. Here, trade-in value must be considered. And let’s not forget that all the above new car costs come around, again. And these are only the direct car-related expenses. There are indirect costs as well. What does that surprise breakdown cost you? What does not having your car cost you? Car quality, reliability, and ease of repair all contribute to indirect car costs. Indeed, with that new car, price does not equal cost.

The same applies to networks and networking devices. Price is but one of many considerations when evaluating the total cost – and ultimate value – of a networking solution. I will take this assertion one step further and state that, given the lesser role capital costs occupy within overall network spending, purchase price should not even be a primary consideration when evaluating networking solutions. How can I make such a statement given that you may spend thousands to millions on your network every year?

In looking at networking budgets and TCO models, capital expenses typically account for around 20% of total spend. The remaining 80% is assigned to operating expenses, including such large cost areas as network support and carrier services. That means that for every $20 spent on equipment, $80 is spent on operations. With this kind of breakdown, savings of 10, 20, even 50% on capital costs (purchase price) can be easily offset by even slight increases in operating costs. And “slight” is a best case. Increases in operating costs can be substantial when introducing unfamiliar and mismatched hardware/software systems and multiple vendors into your networking mix. Here, many operating costs can be pressured upward – e.g., training, staff, integration and testing, installation, maintenance, and break/fix.

In addition, just as with cars, there are also indirect costs that should be factored into the analysis of any “great” deal being offered. For example, there are very real costs associated with network downtime, application slowdowns, security breaches, operating restrictions, delayed process improvements, and lost business opportunities. Here, the indirect costs of that low-price device can actually dwarf your network-related CAPEX and OPEX totals. Here, the cost of doing or, should I say, not doing business can be considerable. Just as there is a price to pay for advanced features – high availability, security, QoS, application acceleration, so too is there a price to pay for not having these features. And the price for the latter is far greater.

Cisco’s holistic systems approach not only reduces networking costs related to the 80% of the pie, but also drives IT service improvements and new business opportunities. That low-priced alternative device may be attractive “on the lot,” but there are so many more important questions to answer before you buy…

  • How does this device affect my support staff?
  • How does it affect my support systems and processes?
  • How does it affect my service levels? Downtime? Response time?
  • How does it affect my repair times? And my deployment times?
  • How does it affect my upgrade plans?
  • How does it affect my network budget in 3 years? In 5 years? In 10?
  • How does it affect future service buildouts?
  • How does it affect my ability to react to new business demands?
  • How does it affect my regulatory compliance?
  • How does it affect my Green goals?

As you see, making a decision on purchase price can lead to many added costs (e.g., IT operations, system downtime, underutilized resources, government fines…) and lost opportunities (e.g., delayed site openings, remote collaboration restrictions, blocked expansion…). Paradoxically, there can indeed be a high cost paid for a low-priced network.

What do you think of this common myth about Cisco networking products? Your thoughts, positive or negative, are welcome.

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2 Comments.


  1. Mark,Your posting is spot on. In a posting on my blog I focused on the impact of comprehensive transformative strategies on customer loyalty including cost, revenues, and net income. Solutions like Cisco’s Unified Communications create the potential for significant transformation of the operation. A holistic strategy where operations, marketing, sales, and supply-chain agree on the positive impact of a new IP-based contact center solution on customer loyalty quickly uncovers the accretive potential of solutions like Cisco UCC. You can read more on my blog: http://smithstrategyblog.com/post/288634385/transforming-customer-loyalty-in-front-officeEd Fullman, PartnerAdam Smith Consulting

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  2. With bad tools have can only do a poor job, alleging always costs down usually means the problem surviendrons later in our spots. For the past never chosen to host the cheapest, but I soon realized that he did not have the capacity to evolve and one day he did not put a security patch on the server, the record is just for a week I have them all my site defaced.Now I prefer the quality that the cost of a service.—LaurentSEO, Referencementhttp://www.referencementpayant.fr

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