The $25,000 Cisco Scam

I keep hearing a ton about the huge Cisco deployment that is happening at the University of Cambridge and one blogger who covered the news wonder if the university would be using third party SIP based phones with deployment, since Cisco Call Manager supports SIP.

Fat chance.

Here is the problem with Cisco Call Managers SIP support:

1. In order to use third party SIP based phones, the phones have to be certified through Cisco. The cost? $25,000.
2. The customer has to pay a per phone licensing fee. The cost? For a single line phone $175, for a multi-line phone$300.

That’s why I call Cisco’s Call Manager SIP support the $25,000 scam. No end user, in their right mind is ever going to pay that sort of fee just to use a third party phone, especially not one that has to buy 20,000 phones.

Here is an example. Say you are frugal. You really want to use Cisco Call Manager, but don’t want to buy a $400 Cisco IP phone. You want, say a Grandstream GXP-2000, that costs $79.99. Great deal idea right?

Wrong.

Since the GXP-2000 is a six line phone, it will cost you $300 for a seat license fee. At that point you are better off just getting a Cisco CP-7960G. In other words, it does not make sound financial sense to use a third party SIP phone, especially since there is basically no phone on the market that really “crushes” a Cisco phone.

This third party phone support is just another by-product of the Cisco marketing machine. Ride the publicity wave. I feel bad for those that forked over $25,000 and for the consumer who actually thought they would be able to use a third party phone.

Cisco – For the Cool Dudes.

Red Herring’s article on Cisco and its ambition to take over from Google as the innovative leader got me thinking as to why are they doing what they are doing.

Cisco was always at a disadvantage compared to Microsoft and Google when it came to interacting with the everyday Joes and Johns. That is one of the bane of being an infrastructure company. You don’t interact with the masses and the ‘word of mouth’ marketing is not that relevant. So Microsoft/Google are known to more people than Cisco even though the irony is that there is no Google without Cisco’s technology.

I assume Cisco got annoyed with this obscurity tag. So they made a conscious decision to invest in ‘Human Networking’. Their whole Unified Communication solution revolves around it. Throw in some ‘Wow’ factor through Telepresence and they become the ‘cool’ company.

I guess in today’s world you need that tag to attract smart talent in all parts of the world. ‘I work for Google’ has such a zing to it and Cisco is looking for something similar. And trust me, they are almost there. People associated with Cisco these days have a swag that probably was not there, say couple of years ago. Cisco will soon be THE place for the cool dudes.

Cisco Pulls Out Their Wallet And Asks For Yours

Someone better buy a few units of Cisco’s new TelePresence video conferencing system (US$79K, US$299K) because they have to pay for their purchase of Orative, a private maker of applications for mobile devices. They spent US$20M on Orative (great name), so they’ll need to sell about 70 orders of the high-end version of TelePresence to make up for it.

As for TelePresence, Cisco is claiming it’s like having remote participants there in the room. Well, the screen is certainly large enough. Don’t forget to shave, huh? But as for real telepresence, unless you’ve got a (hundred) gigabit connection, I’m not so sure I buy it. I certainly won’t be buying it, as I certainly couldn’t afford it. Somehow I think that while Cisco may own over 40% of the IP phone market, they won’t be owning the video-conferencing market. At least not at these prices. Those honors will probably go to SightSpeed.

Does Cisco Own More Then 40% of the IP Phone Market?

The Dell’Oro Group, a market information group, released a report yesterday that has Cisco selling well over 1 Million IP Phones in the second quarter of 2006. The report all shows the total IP Phone market growing by 42% from Q2 of 2005, to over $500 Million.

What I found interesting about these numbers was the fact that an average Cisco IP Phone retails for $565 to $265 depending on the model and if they sold over 1 Million IP Phones in Q2 of 2006 simple math shows Cisco owning 100% of the market space. I know this is not true, so I decided to do a little more math, using a few assumptions, to get a better idea of just how much of the IP Phone market Cisco owns.

Given that the bulk of Cisco’s sales are driven through their two-tier reseller channel I would guess that their “sell” cost is probably at 40% of MSRP after value incentive rebates, etc to there distribution partners. Here is how that breaks out:

• Assumption 1: Cisco Gives Distribution Partners 60% Off MSRP
• Assumption 2: Average MSRP of a Cisco IP Phone is $415 (Using Range of $565 – $265)
• Assumption 3: Average Cost to Distribution of a Cisco IP Phone $166 (Average X. 40)
• Assumption 4: Sales Revenue From Cisco Handsets For Quarter 2 $199,200,00 ($162 X 1.2M)
• Total Market Share: 40% (Actually 39.84, but rounded numbers are better)

Now all of this was done using assumptions based on my knowledge of the Cisco channel. There is room for error – both ways – on this, but for a company that owns 70 to 80% (by revenue) of the Networking market I would think that these numbers are low, especially in an emerging technology sector like Voice Over IP. A sector that is supposed to be a “growth area” for Cisco I would expect to out perform it’s mainstay business. Does this mean that those within the VoIP market (buyers, service providers, resellers, etc.) are not willing to pay the “Cisco Premium?” Does Cisco’s closed system limit their market reach and therefore their potential?

What do you think? Are those within the VoIP industry and those that are considering migrating to VoIP, not willing to pay for the Cisco Premium? Does anyone have any other data on the total handset sales of other IP Phone manufacturers?

Cisco Adopting Open Source?

At a recent regional field training for Cisco IP Telephony, it was mentioned that Cisco is moving towards 3rd party interoperability with their Cisco Call Manager system. With the upcoming of release of Call Manager 5.0 and the new line of Cisco IP end points that come SIP ready, it seems Cisco is finally on track with the rest of the VoIP industry.

This development means that Cisco has recognized that enterprise and SMB customers want the ability to choose which endpoints they use. The ability for Cisco to offer the consumer more choices, as well as, their ability to deliver on a robust, feature rich, fully supported system will put a Cisco system in the hands of more clients. I can see it now, a customer with a $55 Grandstream Budgetone 101, and a $150 Cisco seat license.

Garrett Smith

Cisco SIP Based Unified Messaging

It looks like Cisco is set to unveil a SIP based unified messenger, with their upcoming release of Call Manager (CM) 5.0 this spring.The messenger is presence based, converging video, voice, unified messaging, conferencing, and instant message.

Garrett Smith

The Skinny on Cisco’s CP-7920G

Thinking of adding a Cisco CP-7920G WiFi phone to your SIP based phone system?
Well think again!

Cisco phones have long been the envy of every customer looking at desktop handsets, but have proven difficult to work with especially because they are native SCCP (also known as “Skinny”) and require a fair amount of time to be converted to SIP.

SIP firmwares are readily available for the Cisco CP-7960, CP-7960G, CP-7940, CP-7940G, CP-7912G, and the CP-7910G. A SIP firmware, however, is not available for the Cisco CP-7920G.

Although Cisco does not yet have a WiFi handset that supports SIP, plenty of other manufacturers do. These include the popular UTStarcom F1000 and the Hitachi IPF-5000.

While Cisco remains the front runner in the VoIP handset market, they do not currently have a WiFi handset that works with a SIP based phone system. Look for Linksys, the SOHO/SMB division of Cisco, to offer a solution, in the coming months.

Garrett Smith