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Pete Baldwin 12/5/2012 | 5:39:30 PM
re: Cisco Modules Pay Off – for Other Companies

Here's a possible justification for Cisco's optical markup:


At OFC/NFOEC, I caught just a minute of a panel that included Andrew Schmitt of Infonetics. I didn't put a quote in the story because this was literally 1 minute of the panel and I didn't catch the full context -- I was walking past, to another destination -- but a bit of the conversation caught my ear.


Think of it this way: Cisco is using a pay-as-you-grow model. The chassis cost is relatively low, and the "real" cost of the system gets added on as you add optics.


The same is true for line cards, so it's not an unusual model.  Does it sound more fair if it's put in those terms?


(Of course, the error message you get when using non-Cisco optics would still be a source of irritiation for customers. I think part of what they're sore about is that feeling of being railroaded into one choice, when MSA modules are supposed to allow for many choices.)

-0 12/5/2012 | 5:39:27 PM
re: Cisco Modules Pay Off – for Other Companies

I think you got it wrong. I believe the real reason is that networking industry (and Cisco as part of it) sells software cheaper than it costs and hardware at premium. Software - especially for routers - is sold either at loss or with minimal margin. Inflated hardware prices make up for that.


Vendors have hundreds (in case of big companies like Cisco - thousands) of developers working on sw and it costs tons of money. OTOH software prices in catalogue are frequently mere thousands of $. Compare price of a single licence of MS Win + Office vs price of, say, CRS-1 software. And then compare how many licences sells MS and CSCO.


This whole model is going to change (well, it is already changing). In part because innovation cycle is slowing down. This means we will be paying more for software and less for hw.


When each component sells for the price it costs grey market will loose its attractiveness. Not sure when that will happen though.


 

[email protected] 12/5/2012 | 5:39:26 PM
re: Cisco Modules Pay Off – for Other Companies

Dear editor


You have mistakenly identified Menara Networks as an Israeli company. It is in fact a US company with 100% designed-in-US and madie-in-US products. Thank you for bringing this accidental editorial inaccuracy to your readers attention.


 


Salam   

Rush21120 12/5/2012 | 5:39:24 PM
re: Cisco Modules Pay Off – for Other Companies

Actually Cisco optics have their own business unit with SPA, etc, there is no such business unit as optical any more although products are optical and ethernet products have optical interfaces but optical revenue is not recogonized as part of those products or business uinit. It was created that way back in 2005-6 and still holds true.  I unsuccessfully argued in Cisco (Senior Optical Product Manager, no longer with Cisco) to allow revenue and margins for my products.  There seems to be some confusion over locking or allowing foreign SFF optics.  SFF optics have the ability to put in a specific vendor code when created by the supplier, this is what Cisco and others do to lock their systems to a specific code, in other words if you don't have the code you may not be able to use the SFF.  Some of Cisco's products allow other SFF products to work but create MA or an constant alarm message stating a mismatch.  While some Cisco products won't allow anything but Cisco coded SFF optics, which means you buy from Cisco, used market or black market clone.  I can attest to the effort needed to qualify optical SFF or discretes, its expensive; but Cisco was more than paid back within the first year to that effort.  On other note is warranty, if you don't use a correct product (I.e. Cisco) then you can void your warranty.  Additionally there is huge revenue in Cisco warranties.  Pretty good model for Cisco.

Pete Baldwin 12/5/2012 | 5:39:22 PM
re: Cisco Modules Pay Off – for Other Companies

Thanks for the correction, Salam. I must have gotten Menara's backstory mixed up with one of the chip companies I've talked to over the years.

Pete Baldwin 12/5/2012 | 5:39:21 PM
re: Cisco Modules Pay Off – for Other Companies

> I think you got it wrong. I believe the real reason is that networking industry (and Cisco as part of it) sells software cheaper than it costs and hardware at premium. Software - especially for routers - is sold either at loss or with minimal margin. Inflated hardware prices make up for that.


Could be. You're right that that model would have to change; these vendors are already thinking of themselves as software companies more so than hardware.


Pete Baldwin 12/5/2012 | 5:39:20 PM
re: Cisco Modules Pay Off – for Other Companies

Thanks for the extra info, Rush. Yes, other companies did take advantage of the vendor lock-in code (Extreme was one) but my understanding was that they'd backed off (Extreme, in particular). It's not like I've extensively checked this, though.


Again, I think the core issue behind all this is that some customers are feeling railroaded and bullied. Which opens up these other avenues for getting the optics.

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