Cisco Systems has released a study it commissioned that challenges HP's claim that its networking equipment is 30% to 50% less expensive than Cisco's. The study, shared on a Cisco webcast Monday, shows that while the upfront cost of HP equipment is less, when the total cost of ownership (TCO) of the network over five years is factored in, the Cisco premium shrinks to only 4% to 7% and that the quality of Cisco network technology is worth that modest premium. The release of the report marks another round in Cisco's battle with HP over the network market that HP entered after it acquired network equipment maker 3Com in late 2009.
Cisco has tried to distinguish itself from HP, which one analyst says is the tech company best positioned to challenge Cisco’s dominance in networking, by portraying HP as offering a "good-enough network" or a "basic network," while Cisco offers a network that may be more expensive but is an "intelligent network" designed to meet the growing demands on enterprise networks to handle more traffic and video, support mobile devices and be better protected from security threats. HP claimed market-share gains against Cisco in a research report it highlighted in July.
The Cisco study, done by an independent management consulting firm that Cisco did not identify, calculated the upfront capital expense (capex) and the ongoing operational expense (opex) of an enterprise network serving about 10,000 endpoints and compared the TCO of both a Cisco and an HP network. Cisco acknowledges HP’s claim that the upfront capex of a Cisco network is higher than one from HP, but puts the Cisco premium more in the range of 25% to 30%, not the 30% to 50% HP claims.
In the webcast, Ross Fowler, VP of Borderless Network Architecture at Cisco, said the 30% to 50% savings claim has been touted many times by HP representatives, according to Cisco customers and partners. But when the five-year TCO is calculated, including capex plus the cost of maintenance, labor, bandwidth and energy consumption, the Cisco premium shrinks to just 4%--and that is just for a "basic" network, Fowler said. Furthermore, when the value of what Cisco calls "architectural features" unique to it are added in--such as TrustSec for improved network security, EnergyWise for energy management and Medianet for intelligent distribution of rich media--the Cisco premium rises, but still to only 7%.
Cisco’s Fowler argues that the more intelligent network should be worth a modest premium. "It’s still a relatively small premium to pay for Cisco over HP, so our view is that we have a very compelling economic argument," he said.
The study goes on to discuss other "intangibles" that, while hard to document, should be taken into consideration. Cisco argues that its additional design features reduce downtime and its associated costs, improve productivity and reduce the chance of a security breach. "Once you’re in the 4% to 7% premium [area], then you can start having conversations around the uptime, the user productivity and the security breaches. Even though they’re intangibles, if they’re only in the 4 to 7% range, why take the risk of going with a so-called 'good enough' network?" Fowler said.