Cisco is struggling to maintain earnings and relying heavily on the recurring revenue streams from its support services. In previous years, Cisco would release SMARTnet support price increases once or twice a year, now it’s happening every month.
The company has also been pushing its Business Critical Services, but the vendor provides no transparency on these deals, and some customers are pushing back. The following chart depicts a line item taken from a recent $30M proposal to a client that provides no hourly rates on a $1.5M cost.
This client repeatedly asked for more detail, but Cisco failed to provide any. After much resistance from the sourcing team, Cisco suddenly dropped $6M from the bottom line, without explanation, to get the customer to sign.
In the Enterprise Network space, the vendor has been consistently decreasing its discounts over the last 12 months. One client who contacted us for help noted that their original Cisco deal was discounted at 71%, and the new deal was offered at a 52% discount.
The vendor is also raising prices on its DNA Subscriptions, which were first released with the Catalyst 9000 Series back in 2017 and are now coming up for renewal. Cisco used to apply the same deep discounts for both the Catalyst appliance and the DNA Subscription, but that is no longer the case. By offering slimmer discounts on subscriptions, the vendor increases revenue and locks in a higher price point for future renewals.
In addition, Cisco is auditing customers to discover hardware products purchased for a much lower price in the secondary market. These products are supposed to incur relicensing and inspection fees, and Cisco’s intent is to capture this money, often negating any savings achieved. Audits are used to set up sales of Cisco equipment; the vendor will waive the audit fees if you buy new equipment from them AND replace or remove the noncompliant products.
After examining hundreds of Cisco deals in the last year, we noticed that roughly half of them are over $1M, and half of these are renewals, leaving very little opportunity or money to negotiate with the vendor. In deals that can be negotiated, the most effective tactics with Cisco are:
Control the information that’s shared with the vendor. Often, your IT team has a close relationship with the Cisco team, and this results in information leaks. You must make sure your people do not give away the company’s plans by providing a script and use it to get all stakeholders on the same page.
Get ahead of Cisco by building an accurate demand forecast. Cisco is known for grossly inflating the BAU. We urge clients to prepare for this, and only buy what’s needed when it’s needed, because a discount on unnecessary products is never a good deal. Figure out when your next major network refresh is; whether you have and net new demand; if your needs align with what the rep wants to sell you; and if you have plans in the near term that justify an Enterprise Agreement.
Create uncertainty about the deal by introducing competitive alternatives. In a recent deal, a client decided to pit Aruba’s solution against Cisco’s Meraki, after which Cisco’s discount suddenly jumped to 73%. In another deal, a client was buying Catalyst and Nexus and was unhappy with the discounts offered. After they brought Arista into the deal, the Cisco discounts leapt up to 73% and 69%, respectively. Cisco does not want to give up revenue – especially to another vendor – and is very responsive to these tactics.
For more information on best practices to build leverage against Cisco, watch our supplier briefing here or contact your ClearEdge representative.
Corinne Boyles is a Senior Analyst and Brianna Foley is an Analyst at ClearEdge Partners.