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Cisco attacks HP on network hardware total cost of ownership claims

In a new total cost of ownership (TCO) study, Cisco says HP’s lower prices on network hardware don’t matter. Cisco’s superior quality and features pays you back, it says.

Cisco is directly attacking HP Networking's claims of being the less expensive vendor by arming its sales force and channel with a total cost of ownership (TCO) study that explains away Cisco's higher up-front costs by showing the long-term savings that result from better performance, lower maintenance requirements and advanced services.

Cisco admits it charges more for products, but the networking market leader says that acquisition costs are just a small part of the puzzle. When operational costs and advanced features are considered, the cost gap between Cisco and HP narrows or disappears altogether, according to the study.

Cisco commissioned an unidentified consulting firm to assemble this TCO study, which directly compares Cisco-based networks and HP-based networks in order to disprove HP's claims that lower list prices equal a more affordable, good-enough network, according to Ross Fowler, vice president of Borderless Network Architecture at Cisco.

“I don’t recall any time where we’ve used a [TCO] model to specifically counter a particular competitor’s statements,” Fowler said. “[HP was] making very bold statements that were going unchallenged, and we said, ‘OK, we are not going to play a dirty game with our competitors, but if they are making claims that don’t appear to be substantiated, then we have to call them on that.’”

Network hardware prices: Just a small piece of the puzzle

The Cisco study examined the TCO and the return on investment (ROI) over five years if an enterprise built a network for 10,000 users with Cisco vs. HP products, in two scenarios: A network built for basic connectivity, and a network that leverages broader architectural capabilities like security, rich media delivery and energy management.

The study confirmed that Cisco charges about 25% to 30% over HP, but that the premium is reduced to 7% by the lower operational costs associated with Cisco in the form of reduced labor, bandwidth, service and energy costs. And if one deploys some of the architectural technologies from Cisco, such as Medianet, TrustSec and EnergyWise, the premium slides to 4% over HP. In some cases it flips and the TCO of a Cisco network is slightly lower than an HP network.

In a statement released by HP, the company stood by its claims of a “total cost of ownership savings of up to 66 percent for an HP network over a traditional three-tier Cisco network.”

HP says its FlexNetwork architecture allows networks to build two-tiered (core and access) networks that require less network hardware and lower management costs. HP also says that hardware acquisition costs with HP can be up to 50% lower than Cisco. Cisco disputes that last claim.

The numbers may not hold up for smaller companies

Cisco’s TCO study is clearly aimed at CIOs, but will network managers buy into it? The study is based on the ownership experience of a network built for 10,000 users, which makes some network engineers wonder how well the numbers would hold up with smaller networks.

“That is quite a bit larger than our environment, and I suspect it is quite a bit larger than the majority of environments,” said Don Lester, senior engineer with Wenatchee Valley Medical Center in Wenatchee, Wash. “That baseline makes it much easier to provide a valid argument since even a marginal cost savings can be multiplied by the larger infrastructure.”

Lester said he has never considered HP as a networking vendor, although he uses a wide variety of vendors in his network, including Cisco, so he is sympathetic to the TCO arguments that HP and other Cisco rivals have made.

“I suspect that Cisco is getting into a tough spot in some parts of their product line,” he said. “No matter how much they spin it, basic Layer 2 [connectivity] has been around a long time and really hasn’t changed much. Unless the customer in question is doing something bleeding edge or really needs to be able to guarantee optimal performance, just about any switch will work as well as many customers will need.”

Dave Williams, vice president of IT at a regional bank on the East Coast, said the TCO study from Cisco may hold up for large enterprises with complex environments, but in midsized enterprises he’s always found Cisco to be the more expensive vendor to work with.

“When you deal with these big companies, they want you to have one homogenous system that is all their products. That’s the way they see the world. They’ll always paint it as the least expensive with their own products, but just because you’re using Cisco doesn’t mean that across their products there is that much synergy.”

Williams built his network with a mix of Juniper Networks and Adtran switches, and lower network hardware prices were the deciding factor. In two years, he’s had one Adtran switch fail. The network has met his needs, although he admits that he doesn’t have a very complex environment.

Network hardware prices less important to those who need end-to-end solutions

On the other hand, Cisco’s lower TCO for a complete network makes plenty of sense to customers at large enterprises who still view HP Networking as a mix of old HP ProCurve products and the 3Com/H3C products that it acquired a couple years ago. While HP has some networking products that are equal to or superior to Cisco, HP still has some maturing to do, according to Forrest Schroth, lead network engineer at SFN Group, a workforce solutions company with 800 locations on a wide area network.

“[HP is] trying to pull in a lot of different pieces and make it into a holistic solution,” he said. “From my perspective they really haven’t consolidated their solution into an end-to-end offering yet. Some of [Cisco’s] end-to-end solutions are easier to migrate onto because they are more predictable and known. Some of the soft costs I see with people trying to implement HP solutions right now come with integration costs that you really wouldn’t see in a Cisco scenario.”

Let us know what you think about the story; email: Shamus McGillicuddy, News Director.


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