At Cisco Networkers 2006 in Las Vegas, Cisco CEO John Chambers, apparently with a straight face, told a group of assembled trade press and analysts that Cisco probably isn’t charging enough for its software products.
Some Cisco customers might laugh or stammer, depending on personal disposition, upon hearing that bit of news. After all, the idea of Cisco not charging enough for its products seems outlandish. If you were to poll enterprise network managers and CIOs, you’d find that “low prices” aren’t a concept they associate with Cisco Systems. Instead, many buy Cisco gear, and pay a brand premium in the process, because just as you once never got fired for buying IBM computers and services, it seems that you don’t get fired today for buying Cisco network infrastructure.
There’s no question that Cisco’s margins are healthy, but Chambers believes they could be better, and he’s probably right. About 50% of Cisco’s engineering staff works on software — I think the figure is higher, but that’s the percentage Chambers quoted in his roundtable discussion at Networkers — but Cisco builds and accounts for that software value on a hardware-predicated pricing model.
Yes, there are support and maintenance charges that apply both to software and hardware, but Cisco might be thinking that, with the rise of network appliances and software as a service (SaaS) — as well as the increasing prominence of software in networking products that facilitate and optimize the convergence of voice, data, and video, plus real-time presence and collaboration across all media — it can easily squeeze more margin and revenue out of their product portfolio by moving to subscription-based software pricing across a range of offerings.
Twilight in the Valley of the Nerds 