Old habits die hard, especially when it comes to buying network gear and accessories based on long-standing procurement practices. While it may seem easier to sustain the status quo, doing so can expose you to undue costs created by manufacturer price-gouging practices.
Case in point: Optical transceivers, which Gartner says accounts for 10 to 15 percent of enterprise network capital spending. This may not seem like a big budget buster, but huge markups on optics is the subject of a new Gartner report, entitled “How to Avoid the Biggest Rip-Off in Networking.”
After looking at different system integrator and manufacturer pricing strategies, as well as customer buying habits, Gartner observed enterprises regularly overpay for transceivers by 50 percent or more. Massive markups are part of the problem, compounded by the fact that manufacturers like to fuel fear, uncertainty and doubt (FUD) around the legitimacy of third-party optics.
This argument, however, falls flat, as the overwhelming majority of transceivers sold across the networking ecosystem essentially come from the same place. Most manufacturers, systems integrators, resellers and independent network solution providers rebrand optics obtained from Finisar, the world’s largest supplier of optical communication products.
350% price markup because of a logo?
Therefore, why should anyone pay up to 350 percent in markups just to get the addition of a manufacturer’s logo? And don’t fall victim to the claims that it’s illegal to use third-party optics or that putting them in your network voids existing warranties.
Neither is true. Most leading providers of third-party optics offer lifetime warranties, so where’s the risk? Well, to be fair, you should always look beyond price when picking a supplier of any network or IT gear. In addition to seeking favorable pricing, ask about the depth and breadth of a vendor’s compatibility or interoperability testing.
It’s important to know that any third-party optics you’re considering are fully compatible with the operating systems and latest corresponding software releases from your networking equipment supplier. If you still have questions, ask to see testing logs and compatibility reports.
Reputable third parties guarantee 100 percent satisfaction. And because many focus solely on this market segment, most also are experts on troubleshooting if there are any problems or questions.
Some procurement departments might balk at cutting separate POs for optics. I’d hazard a guess that this old thinking is partly why manufacturers still get away with price gouging on network accessories.
How to counteract manufacturer price markups
New thinking is the best antidote to counteract unnecessary markups. Get creative, and include extra optics in your purchase to benefit from volume discounts and reinforce self-sparing strategies. Many end users embrace a hybrid approach, where they maintain a workable amount (10 to 20 percent) of manufacturer-branded transceivers while keeping an ample supply of third-party optics on hand.
And remember, you still can avoid overpaying even if you stay on the manufacturer-brand-only route. First, make sure you don’t pay for the most expensive optics when a more affordable model would suffice. Second, negotiate pricing separately for optics so you can hold firm on a bigger discount.
Purchasing third-party optics may not be the most exciting part of your hardware acquisition strategy, but with just a little effort this new way of thinking can put dollars back in your IT budget while maintaining your peace of mind. Then take those savings and apply them to the innovation, automation and tools your organization needs to stay competitive, relevant and ready to reach the next level of business success.