Cisco Turnabout Validates Secondary Market

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Cisco's openly talking about the value of refurbished equipment demonstrates how used networking gear has a second-life value. But one critic says Cisco pricing and expectations show it still doesn’t understand the used sales model.

Rejoice! That’s the sentiment expressed by at least one refurbished equipment reseller following Cisco’s announcement that it will embrace and promote the resale of its used equipment to channel partners. While it validates the secondary market, this reseller questions whether Cisco is actually giving partners a good deal.

Mike Sheldon, CEO of Network Hardware Resale, tells Channelnomics the Cisco announcement earlier this month is what secondary equipment resellers have been waiting for. For years, Cisco shunned the secondary market, considering it a threat to the sale of its new equipment and open for gray market sales. By openly promoting its own program, Cisco, Sheldon says, is showing the value in refurbished used equipment.

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“It’s recognition of the economic conditions and the customer realities,” Sheldon says. “There must be enough customer demand if Cisco is going to stop sweeping it under the rug.”

In promoting used equipment, Cisco is using language that secondary market resellers have been using for years. Used networking switches and routers are good for organizations that have standardized on certain models, filing gaps in supply chain shortages or simply for businesses that don’t have the budget for new equipment.

The Cisco refurbished program is headed by Maryann von Seggern, the former director of worldwide channels development at Cisco Capital, who is charged with finding new homes for millions of dollars of leased and returned equipment coming back to Cisco. She believes the total addressable market is $3 billion annually. To capture a greater share of that market, Cisco is starting to actively market used equipment to channel partners as an option, and sell gear for 10 to 15 percent off the new list price.

And that’s where Sheldon questions Cisco’s commitment to refurbished equipment. NHR sells used equipment restored to factory-quality settings and with full warranties for as much as 80 percent off the new price. Those prices give resellers ample ability to maintain a strong margin while providing the end customer with serviceable equipment at a steep discount.

“I don’t know how compelling [it will be] if the equipment is 80 percent less effective, but only 10 percent less than new price,” Sheldon says.

Sheldon believes Cisco will have to adjust its expectations and operating structure if it hopes to find its own success in the secondary market. That means it will have to take lessons from the refurbishing houses that it’s more or less shunned.

Cisco says it’s never going to lead with used equipment, and will promote its new models and technologies first – and that’s another part of the problem that Sheldon sees. Cisco has made a fortune selling new equipment that has only marginal improvements. Used equipment threatens that incremental refresh model. When push comes to shove, Sheldon believes Cisco will simply default and thrust its new models on customers.

Sheldon believes the secondary market plays a vital role in supporting and preserving the Cisco install base. By selling used equipment, the secondary market keeps customers from switching brands that have lower priced equipment than what Cisco is selling new. And when it comes time for a true refresh, the used equipment buyer will upgrade to a new Cisco box.

“The refurbished market is a legitimate and important channel to stick with Cisco. The alternative if we didn’t have [used equipment] would be Hewlett-Packard,” Sheldon said.

Frankly, Sheldon raises some good points: What’s the point of buying used if you’re not going to get a bargain? And is there such as thing as premium market in used networking gear? That’s tougher, since people will pay top dollar for used Mercedes and BMWs. Sheldon is probably right that Cisco will have to make some adjustments in its used equipment program if it wants partners to embrace it as a strategic opportunity.

* * *

Lawrence M. Walsh is CEO and president of The 2112 Group, a technology business advisory service that specializes in optimizing indirect channels and partner relationships. He’s also the executive director of the Channel Vanguard Council. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at lmwalsh@the2112group.com.

On Twitter:
Larry Walsh: @lmwalsh2112 | Channelnomics: @channelnomics

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