Cisco got enough grief this week, after announcing a big slide in sales and earnings in its fiscal fourth quarter. Yet you can't criticize the networking giant for its execution and focus, which is why I was surprised to see them dinged in the Wall Street Journal for bypassing the $2-billion market in used networking gear.
Here's the WSJ article, which was actually posted the day before Cisco's earnings report. The thesis of the piece is that "demand for used networking equipment flourishes without Cisco, driven by the recession and tightening budgets. Yet instead of embracing the estimated $2 billion market, the San Jose networking titan largely ignores it, pointing out the potential risks and complications of using discarded gear."
It goes on to note that used gear typically sells for 50% to 70% off list price, which begs the question -- why would Cisco want to get into what must be a very low-margin business? In addition to the big list-price discount, used equipment must be tested and refurbished.
Plus, once out in the field, appliances that don't perform threaten to cast a bad name on the company which provided them. A Cisco spokesman noted this in the article, pointing to potential "customer-satisfaction" issues.
Add to all this the fact that any money you make selling pre-owned equipment surely cannabalizes revenues you could be making from brand new stuff. (That's the money you could be making with Geico!)
On the contrary side of the argument, we find Doug Washburn, an analyst at Forrester Research, who is quoted in the article as saying: "The down economy is prompting these questions and forcing people to act on this."
One would think that there is indeed a huge opportunity for used networking equipment right now, given the tight economy. But the people best positioned to reap the rewards are networking VARs and resellers, who can help their customers out by shaving big bucks off of their bills. Of course, you have the sticky problem of contractual limitations, which might make it difficult for the authorized VARs of the major networking vendors to bundle used equipment into the configurations they're offering customers.
Still, there's a healthy enough business in used equipment -- that $2-billion annual market -- that a lot of people (independent resellers, individuals, and SMBs) are diving into the market.
According to the WSJ article, the big used marketers (which are also fun sites to browse) are Network Liquidators, which promotes themselves with the tagline: "We Buy and Sell New, Used, and Refurbished Open Box Cisco Systems, Extreme Networks, F5 Networks, Juniper, and Compaq equipment at up to 90% off list!" There's also a company called Network Hardware Resale.
A quick Google search on "used network equipment" turns up dozens more, which is enticing, but also emphasizes the serious aspect of caveat emptor when dealing with one of these places, especially if you haven't heard of them. As anyone who's ever bought used PCs has discovered, you're never quite sure how the buying experience will turn out. Which is why Cisco is wise to stick to giving its customers a solid, repeatable brand experience.
My last thought, which is only half facetious, is that maybe there's a Federal technology stimulus plan lurking here somewhere. Cash for Networking Clunkers, anyone?
Follow me on Twitter.