Cisco's Prices Seen as a Fair Trade-off

Computerworld - Twenty years after it was founded, Cisco Systems Inc. so overwhelmingly dominates the networking equipment market that many network managers say they don't balk about the need to pay premium prices for most of its products.

The upfront cost of Cisco's switches and routers is often higher than the price of rival devices, according to interviews with 15 Cisco users. Some of the users said the pricing premium charged by Cisco can total 15% or more, and analysts cited even larger cost differences. But most of the users put Cisco in the legendary category of 1970s IBM—a safe choice that won't get anyone in IT fired.

Cisco also got high marks for the reliability of its products and the strength of its customer service. As a result of the widespread perception that Cisco is more expensive, the users said they do try to keep an eye out for price discounts and innovative technology from Cisco's competitors. Still, they added that they often end up sticking with Cisco anyway.

For example, Cardinal Glass Industries Inc. in Eden Prairie, Minn., has purchased mostly Cisco networking products for the past four years. Brian Moss, a senior systems engineer at the glass maker, estimated that it pays a 15% premium on average for the devices, compared with those from vendors such as Hewlett-Packard Co. and 3Com Corp. But the extra costs have been money well spent, he said.

"We've tried other vendors and just weren't happy with support," Moss said. In contrast, he added, Cisco's support workers "answer our calls, they know the answers to our questions, and it's a good OS and a familiar product."

"A Cisco network is a rock-solid network, and if we weren't able to build [ours] with Cisco hardware, I don't think I'd feel all that comfortable," said David Roessler, director of information services at Quay Corp., a company in Eatontown, N.J., that makes printed circuit boards for electronics manufacturers.

Other vendors might offer technology that's similar to what Cisco sells, Roessler said. But he added that he doubts they would be able to match its technical support prowess, such as its ability to provide software patches and fixes quickly and reliably.

Cisco accounted for nearly two-thirds of the $22.3 billion worth of switches and routers sold globally last year, according to Framingham, Mass.-based IDC. Its share of those two markets was virtually unchanged from 2002, the research company said.

IDC tracks at least 20 vendors in the switching market, and Gartner Inc. analyst Mark Fabbi said there are plenty of viable alternatives to Cisco. Fabbi urged users to avoid upgrades of Cisco installations without bothering to seek bids from competing vendors. Nonetheless, he referred to the switching market as "Cisco and the seven dwarves."