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Home > Archive > CCIE > June 2002 > Interesting Position!
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Interesting Position!
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| Beware of this policy before buying used Cisco equipment
Posted Originally on Mar 28, 2002 by
David Davis MCSE+I, CCNP, SCSA
Cisco Systems was the darling of the IT industry and the stock market in the 1990s, as it enjoyed phenomenal growth (50 percent or more, year after year) throughout the decade. During this period, Cisco was, at times, hiring upward of 1,000 new employees per month. Then came the dot-com bomb and economic slowdown of 2001. Cisco took a record $2.25 billion inventory charge, laid off 8,000 people, and watched its stock take a nosedive. Now, Cisco has sharpened its teeth and is trying desperately to make a comeback.
With the economic downturn and the particular weakness in the telecom and IT industries, the demand for new network equipment has ground to a halt. Even worse, the bankruptcies of so many companies have not just created a lack of demand; they have also created a tremendous surplus of used and unused new equipment on the open market. This surplus is one of the things that is hampering Cisco’s comeback.
By “open market,” I mean any source that doesn't come from Cisco's manufacturing plant or inventory of new equipment. Some examples of the open market are:
• Individuals and organizations that sell routers on eBay in the Cisco category.
• IT Parade, where dealers join together to sell their products. A search on IT Parade at the time of this writing found 1,886 Cisco items for sale.
• The very active ISP-Planet: ISP-Equipment discussion list, where visitors can post that they want to buy or sell network equipment with no commission fee for connecting the two.
• Hordes of used equipment vendors like Asset Recovery Center (as mentioned in the Fortune article “Cisco’s Worst Nightmare”).
• An individual, like you, wanting to sell your router privately to another individual, like me.
While these options can offer practical solutions for both the buyer and seller of Cisco equipment, any organization that is considering the purchase and implementation of used Cisco equipment needs to know that Cisco is doing everything it can to undermine these sales and make it difficult for companies that purchase used equipment, as I recently discovered.
My company's dilemma
My company has been looking to replace our aging (and discontinued) 3Com network equipment with current technology that can be serviced and supported by its vendor. We have a wide area network (WAN) made up of about 60 locations. We would prefer to do this upgrade with Cisco equipment. Last year, I quoted new Cisco equipment to do this. The cost was going to be about $500,000.
We decided to start this rollout midyear 2002 and, due to the high cost involved, we planned to have to spread it out over three years. I also looked at Cisco’s “refurbished” equipment offering and decided to go with that instead of new equipment. The refurbished equipment would save me significant dollars, and I could get it through the same channel as my new equipment. The only problem is that many Cisco refurbished parts are often unavailable, so I looked into the possibility of getting used equipment from the open market. I found that I could save my company a few hundred thousand dollars and would be able to complete the project in a year and a half (because of the lower cost) instead of the original three years—a tremendous benefit to myself, my IT group, and my company as a whole.
Although I had read the Fortune article on usedCisco equipment, I never expected that Cisco would treat me as it treated the prospective buyers in that article. After telling my Cisco sales representative that I wanted to buy used equipment, I expected him to try to talk me out of it, but I was naïve and didn’t expect what happened next. He told me the following:
• Cisco has taken a hard line on "noncertified" (used) equipment.
• Cisco will absolutely not uphold the support and/or warranty that came with the equipment or that was purchased by the previous owner of the equipment.
• Noncertified equipment cannot be covered under Cisco SMARTnet maintenance unless my company pays to send it to Cisco, pays an inspection fee, and pays to have the equipment sent back.
• Cisco will require my company’s legal team to sign a form releasing Cisco from all legal claims against them in relation to use of used equipment.
• If my company does not buy an IOS license for every piece of used equipment I purchase, Cisco will “explore legal action based on nonauthorized use of our IOS software.” (I take this to mean it will sue my company.)
Beware of this policy before buying used Cisco equipment
Looking at the options
After getting over my outrage, I did some research on this. An equipment vendor requiring a company to have used equipment “certified” before allowing it under maintenance is nothing new. Vendors like IBM have been doing this for years, but it is typically done on a large and expensive piece of equipment—not a router that costs $1,500.
What is unique and not very well known is that Cisco licenses its IOS (the operating system of the router or switch) per company/user, and that license is nontransferable. That means that if you buy a router and sell it to me, I can't use the software that runs the router, which makes the router worthless unless I buy the operating system from Cisco.
This would be similar to my buying a PC from a retail store, selling it to my brother, and having Microsoft tell me that I can't sell or give him the Windows software (or any other software on the computer) even though I bought it and have the license, CD, and manual for it.
Let's take a look at the following example to see how Cisco's policy affects the price of buying a Cisco 2610 router. Note that the prices are approximated from the time I looked them up and include a basic corporate discount.
Option 1: A new router
New Cisco 2610 router with IP-only IOS license $1,487
One year of Smartnet Maintenance on that router (8x5xnext business day) $390
Total: $1,877
Option 2: A refurbished router
Refurbished Cisco 2610 router with IP-only IOS license $1,126
One year of Smartnet Maintenance on that router (8x5xnext business day) $390
Total: $1,516
Option 3: A used router
Used Cisco 2610 router (“noncertified”) $650
One year of Smartnet Maintenance on that router (8x5xnext business day) $390
Cisco inspection fee for router (not including shipping and handling both ways) $750
IOS IP-only license for the router $400
Total: $2,190
Final analysis
In my opinion, Cisco's tactics amount to an attempt to put vendors selling used Cisco equipment out of business and to keep companies from being able to buy and sell used Cisco equipment.
With Cisco’s “inspection fee” and the nontransferability of the IOS license, Cisco nullifies the price savings of buying used equipment. Why is this important to network managers, IT directors, and other IT professionals? Because Cisco is trying to take away our freedom to leverage supply and demand. Cisco is trying to take away our freedom to get a good deal when the market makes it available.
This isn’t right, and I believe this strategy will only hurt Cisco in the long run. If and when IT professionals become aware of Cisco's unfair business practices, customer satisfaction and sales will decline despite the fact that Cisco may have a superior product. My recommendation to Cisco would be to simply focus on creating great products that customers will want to buy rather than try to control the open market.
In the meantime, any organization that thinks it’s going to save some money by purchasing used Cisco equipment should think again. Cisco's tactics could make it difficult and financially unwise unless you are buying higher-dollar equipment.
Not good for the Biz I think!?! | |
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| To me, this is fair.
How can you expect anyone to carry that liability of used equipment withuot them having a say in the quality and condition of the transfered product?
When I go to an all you can eat buffet, I don't expect to feed my whole family wiht the same meal ticket.
with the depth of support offered by cisco and the cost of providing that support (after all, its not 7 bucks an hour staff we are talking about), expecting them to offer that for a piece of equip that has transfer over many hands is unrealistic.
the part of licensing is just funny... seriously, what we do in our own lab or our own pc concernign licensing may be a different story ( i am sure cisco will be happy to provide support for my12.2 ios on all my 25xx... , but at work I make sure I/licensing manager/others have licensed products, especially os/major app.
I really don't see a problem with cisco's tactic. The liability/support is a major and costly problem and for a corporation purchasing that large sum of equip, to look for shortcuts that skirt legal issue is quite dangerous. | |
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| Is there an educational licensing package for us home lab rats?
I would not want some totally ripped down version but maybe a full software version that would not use anything but rfc 1918 addressing?
Maybe this exists? Thoughts anyone? | |
| Doug_Black 2002-05-20, 7:13 pm |
| Hey Cobby,
If I was in your position, seeing I once sold Cisco equipment and was a big user myself before getting laid-off; I would take a look at "Leasing the Equipment" seeing there are some serious potential tax benefits for the company (Lowering the Cost of Ownership). Never "Lease" a Support Contract, BUY IT straight up! Also, you would be making the monthly payments over the use of the equipment and that helps the budget for the project & the IT department as well. You also get the equipment as you feel the need and can plan the installs. Ask the head of accounting how they feel about setting up a "Master Lease" for this project and let the Cisco Sale Reps, other salespersons or competitors know that is an option your company wants to explore! 
Secondly, I would take a good luck at the competitors to Cisco and get ALL the marketing hype and comparisons to Cisco gear you are looking at getting for the company. Put out a RFP (Request For Proposal) & RFQ (Request For Quote) and when you have ALL that, call the folks in from Cisco and let them know you are seriously thinking of opening up to other vendors if they are un-willing to compete on price, etc... Also, the used market can make for good backup units for your Disaster Recovery Plan and they don't need the Service/Contract Warranty(s).
Third, I would call Cisco's HQ and find out who is the largest three or four Cisco dealers in the country and put it out for bid. If Cisco won't give that info (Cisco Customer Relations or Investor Relations Departments), contact the computer distributors (ie. IngramMicro, TechData, Gates-FA, etc...) and they will gladly refer you to their largest resellers! Also, allow the large mail-order houses like CDW, Insight & CompUSA to bid as well. Let the local Cisco Rep know that if you buy or "Lease" you have no obligation to let them know what you bought or from where (He or SHE gets paid a commission for each piece of equipment delivered or installed in her selling territory) & another Cisco Rep might be getting their commission instead!!  If you buy NEW from a store in Alaska and deliver & install in Florida he/she won't get credited for the sale or paid the commission for it. Also, hit them up for some FREE training for your staff for getting your people certified or re-certified seeing that does not really cost them anything and get their help in programming the equipment with one of their System Engineers. 
Bottom line is that your company benfits with the upgrade of USED or NEW equipment. The Leasing option means additional SPIFFs or commissions to the sales people so they can discount more on price and your company gets TAX saving spread out over one to five years as you CPA/Controller chooses. Play some "Hard-Ball" with the folks at Cisco and I bet with the kind of money you are talking, Cisco will find a way to keep you as a customer and make you happy. Been there and done that before myself!  | |
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| Thanks Doug,
That's a good piece of advice.
-Jay | |
| Doug_Black 2002-05-20, 7:35 pm |
| Hey Cobby,
This is a just a part of what makes this forum great. When I say the name "Jay", it reminded me of a gentleman by the name of "Jay Pfeiffer" who was a CCNP (CCIE now I a sure) that saved my company some bucks when Sprint screwed me on my WAN changes and brought down our corporate HQ. Sprint did a "Cold Cut" and Jay had to tell the folks at Sprint what they did wrong and how to fix it on a weekend no less. That day, Jay saved my butt or job, depending on how you want to look at it. I was a happy camper and I have refered him customers ever since!
I made a quick edit to my previous post so you might want to re-read the 3rd paragraph and rub salt in the wound of the Cisco Reps. I do love and swear by Cisco gear for routers, but I am happy with 3Com switches for manageability on the LAN side. As for IP telephone systems, I love the 3Com NBX phone system and would buy it over Cisco's telephony products any day of the week!  | |
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| I'm a reseller, and we too have our issues with Cisco's policy towards resale of used equipment, but there are other issues that haven't been put forward here that much.
Cisco is a business, and like *any* business, they are out to look after their interests. Have any of you ever had to use Cisco Warranty or Smartnet replacement? I have - a lot. Compare it to Extreme Networks, for example.
My 'one week turnaround' replacement, where I should get my replacement part within 5 business days after sending Cisco my defective part.. well, it was on my chair at 8:45 the next day - BEFORE i had even packed up the dead part. Not once, not twice - *always*. Smartnet NBD - same thing - before 9am.
With Extreme - 8 business days later I'm still fighting to get an RMA.
Now, providing NBD service - even on '1-week' contracts.. hey, that can't be cheap. Why on earth should Cisco let you buy a Smartnet contract on a used 3640, or PIX-515, or other, several thousand dollar piece of gear - when they can't prove that it works? And since there's only *one* way to make sure it works, they want to see it. To top it off, you bought it from someone else, want to buy a 'warranty' on it, and complain that they make you pay shipping and handling on it? Bah. For my money, you're lucky they even think about letting you get smartnet. Try that with a loudspeaker, even. "What, you're not the original owner, and the whole box melted? Sorry, the warranty is void - its non-transferable!" . Very common. For a no-configuration required loudspeaker, nevermind a router or a switch.
If I was Cisco - you didn't buy it from me, no Smartnet. Period. OH, your datacenter blew up? Well, I can sell you this brand new set, have it at your door tomorrow morning, for list. Your reseller sells at 35% off list? Well yes, but that'll take what, 6 days? 10? I can have it tomorrow, but its list. You're losing how much an hour because your datacenter is down?
Welcome to the real world of real business. Cisco isn't out to be nice to you. If you want to buy used gear which you've had no control over its use, that's your own risk management, not theirs.
Licensing. Oh, you want to use the IOS. But that router was sold with version 8.1. Somehow its got 12.1 on it. Well, yes sir, I know that you bought dos 5.0 from Microsoft, and they said that sure you could use WindowsXP on the PC.... not.
Routers/Switches/PIXes/etc. aren't PCs. The OS isn't *ever* supposed to be touched unless you have bought an upgrade. Realistic? no, everyone upgrades their IOS pretty much, and Cisco doesn't hunt people down for it - but by the time you get it, your 99% likely to be using the windowsXP version on a box that was sold with anything from DOS3.3 up to Windows2000. You wouldn't get *anywhere* telling MS that's fair. Cisco neither.
I have my issues with Cisco. One of them being waiting for us to cut a deal with a customer, then going direct and undercutting us. Or hiring away staff from my company right into Cisco - we pay to train them, then Cisco hires them. They aren't always my favorite company - but for used gear and used licensing.. I can't fault them, not one bit. If someone doesn't want to pay for new gear, then its *their* risk, and *their* problem, and if you want Cisco to handle *your* risky choices on used gear, then, very sensibly, their going to ask you to pay for it.
I think there's a serious future still in Cisco gear. No other vendor I work with matches them on service and support. Hence I've got my CCDA, CCNA, CCDP, CCNP, CQS-Security, Wireless, and working on my CCIE. Are they perfect? no. Are they within reason? Yep. Try to get nortel to sell you a support contract on used BayStack stuff, watch what happens. | |
| wirechild 2002-06-03, 4:23 pm |
| I would have to say that I agree with cisco on this one. It is just smart business on thier part.
I would disagree with you on the licensing part, you should read the license agreement for WindowsXP you are not allowed to resale the OS once you have used it on a machine and yes even if you sell the PC the OS can't be sold with it or used with it. |
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