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The confusing world of used network equipment licensing – or how OEMs could make money from the secondary market

Network equipment licensing is overly complex, badly thought out and in urgent need of overhaul by the original equipment manufacturers (OEMs). The words of Mike Syiek, Network Tigers’ President and Founder, might be a generalisation, with some exceptions to the rule, but the veteran network guru has had a long career trying to navigate the choppy waters of licensing.

Anyone managing a data center with a myriad of network equipment hardware knows the frustrations with the oftentimes complex rules for licensing that rule the network equipment industry. Different companies follow different rules in terms of licensing, and these rules often change, creating headaches for those trying to deal with any equipment that changes hands.

Most OEMs regard the secondary market – or the used market – with disdain. It is here that their potential clients can buy “first rate equipment” at a discounted price.

In other words, the OEMs view their own products on the secondary equipment as competition.


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Blocking functionality

That attitude can affect the logic that an OEM may use to create and manage any secondary licensing. A unit may have a base license that offers minimal services. OEMs can offer an array of services and functions, available by paying extra fees.

But some OEMs block out all unit functionality to any secondary market buyers; some offer limited functionality and others successfully sell services to those who buy their products in the secondary market.

How one manages licences over the lifetime of a product can mean the world for success or failure of a company and how welcome their products continue to be to the many companies that may own them after their first sale.

There needs to be a paradigm shift in the way the majority of OEMs view the secondary market, according to Syiek.

He calls for a viewpoint that considers the lifetime of the product, rather than the lifetime of the product when with the original purchaser.

This viewpoint could mean seemingly unlimited extra revenue for OEMs, and a chance for the secondary market to achieve a multi-billion dollar revenue potential for the OEMs.

Make title transfer easier

A good first step would be to make title transfer easier. At present, we have to navigate a minefield whereby it must be ascertained whether a license resides with the unit (via the product serial number), with the unit and owner account, or with the unit, the account and the location.

If we were simply allowed to purchase a license along with the secondary market product, things would be much simpler. An existing license could be transferred, even if it was pared down to minimum servicing, with the option to purchase add-ons, new licenses or different services.

Cisco’s Smart Net maintenance contracts are not available in the US, and a Smart Net agreement can’t be transferred to another owner. Also, the contracts are dependent on the age of equipment – the company simply does not offer support on kit over a certain age.

OEMs could also work to make monitoring of licenses and ownership easier, allowing for more clarity in terms of secondary market purchases and transfers.

In its simplest form, allowing changes to the current overly complex systems employed by OEMs would allow the OEM to know exactly who is using its products – and how they can market additional services to these end users.

Can and should companies actively work to avoid all this potential extra revenue? It seems giants like Cisco (with its Smart Licensing) have been fighting second hand sales of their hardware for well over two decades now – which is surely counter-intuitive.


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Easy, straightforward and hassle free

Transfer of title where it is legitimate should be easy, straightforward and hassle free.
And yes, we understand and agree that licensing is a superb idea from a point of view of support upgrades and product security.

But in the ever increasing complexity surrounding licensing, perhaps we should ask, what do we actually own? A modern licensed product feels more akin to a leased product, a relationship between OEM and end user which becomes all the more apparent when it comes to selling used equipment.

A Reddit user via r/Cisco points out a fair caveat – that most of the problems he faces, as a network engineer, arise from the fact that most end users/ owners don’t keep, or keep track, of contracts. Many people and organisations lose track of contracts, and have little to no idea of what’s expired and what’s still covered – until an upgrade is required.

OEMs are losing massive amounts of potential revenue thanks to misguided licensing rules, seemingly based on a desire to only make revenue from brand new products and willfully ignoring what could be a thriving secondary market.

One line of thought is to require OEMs to recycle used equipment, or face fines. This would surely suddenly see renewed interest in reselling used equipment under the auspices of the OEMs.

Recognising value

Many of the major original equipment manufacturers do not currently recognize value in the secondary marketplace – so they work to contain it. Complex licensing works well, as we’ve said, for new owners, but it seems the plan is to obfuscate the process for anyone interested in buying used units.

We get it. The aftermarket, estimated to be worth several billion dollars annually worldwide, represents a significant lost revenue opportunity for Cisco, for example, mainly through foregone support and maintenance revenue.

As Syiek puts it: “If they took an approach to the secondary market as a way to get revenue from used equipment in the market, they could easily grow their bottom line. Most OEMs fail to see the opportunity and rather than grasping it, continue to fight to block it. Billions of dollars of opportunity are being wasted because of an attitude of ‘not-invented-here.’”

The network guru holds SonicWALL’s model up as something of a benchmark. The company is one of the few OEMs to embrace the secondary market – bringing the company seemingly everlasting revenue. Its forward-thinking revenue model ensures a vibrant secondary market for Sonicwall’s range.

SonicWALL allows users to actively transfer ownership of a device into their own account with a veto option only for the former owner. All units and their associated licenses are quickly displayed for an end user or owner.

Dell, meanwhile, allows product transfer from the former owner’s account into the new owner’s account if the new owner knows the old owner’s name and address. This makes transfer difficult if the products are purchased from anyone except the original owner.

(Cisco owned) Meraki allows registration of a secondary market purchase only if the unit has been released by the previous owner. If the previous owner does not release the unit, then Meraki will not assist and by default stops the transfer.

The problems of transferring ownership include a fear on the part of the OEM that if they assign any value to units on the secondary market, this will jeopardize the value of new products (with a wave to reboxers) and decrease new sales. Such protectionism creates a billion dollar bottle neck to their option to have a vibrant secondary market.


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Clearing the license fog

Easing the complexity of transfer of ownership would simply mean the license could travel with the unit (and probably with the agreement of the original owner and the new buyer), and be location agnostic.

If you could easily register as a new owner and be given access to licenses and other services, it’s likely you would take advantage of adding new services, and the OEM could then market its services, add-ons and new products to new owners.

Transfer of ownership should mean transfer of services, support and warranties, for example. There are mountains of products that could be used in a variety of situations that are rendered scrap by virtue of the disinterest – and lack of understanding – of the secondary market on the part of OEMs.

“We need to think about whether we need to be in a unit-centered services and support model, or a customer-centered service and support model,” says Syiek, adding that SonicWall’s secure upgrade program hints at the future path for OEMs.

“OEMs have to start to see opportunity in the secondary market, by studying service, support and customer information. SonicWall offers discounts on new equipment when current owners sell the rights or title of old units. There’s a discount on new services, but the used unit gets stripped to its base license and it cannot be upgraded,” explains Syiek.

In short, the transfer of ownership of goods in the secondary market needs to be recognised by OEMs as a legitimate activity, that can be monitored, managed and encouraged, before this multi-billion dollar industry is wiped out, and we are left with mountains of equipment which cannot be used simply because of OEM short-sightedness.

 

Will Rankin
Will Rankin
Will is a business journalist who loves digging out the facts and unboxing the truth

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