Cisco Considers Unbundling Hardware And Software Prices - InformationWeek

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Cisco Considers Unbundling Hardware And Software Prices

But any changes are years down the road, CEO Chambers says.

High prices have always been one of the biggest knocks against Cisco Systems. Yet that hasn't kept the company from being the networking equipment market leader by a wide margin.

Cisco CEO John Chambers last week said he's taking a close look at how the company prices its products and may make some changes, at least when it comes to software. But Chambers was vague enough and the potential changes so far down the road that it's hard to tell whether customers will end up paying more or less.

Time to evolve the software strategy

Time to evolve the software strategy
Cisco sells most of its applications bundled with hardware and tacks on maintenance fees here and there. But as the company embeds more and more intelligence into its equipment, software has become one of its biggest areas of research and key drivers of revenue. Meanwhile, software also has made routers and switches more flexible, letting customers use them longer.

"What we've got to think about over the next five years is how our software strategy will evolve," Chambers said during the company's user conference. "More than half of our engineering is software, yet we sell it as a hardware product." Separating software from hardware could give customers a clearer view of exactly what they're buying, he suggests.

Though some software may remain bundled with hardware forever, much of it may end up being decoupled. For example, he said, "I don't believe, if we're going to be in network management, in folding that in with the rest of your costs."

That means a customer with a large investment in network management products from other companies may not have to pay for Cisco network management products that aren't used.

But if Cisco moves to a more conventional licensing model for its software, customers may end paying more for software. That could let the company cut hardware prices. The key is in the implementation, and Chambers isn't ready to talk about that.

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