Networking giant Cisco, which has long sold routers, switches, and other network equipment as a bundle of hardware and software, is now looking to unbundle the hardware and software components. In theory, this would allow customers to run Cisco software on other vendors’ hardware, and third-party software on Cisco hardware.

In the short term, this is a risky move for Cisco. It dominates its markets, and major changes in the way it prices products could open the door to competitors, especially if the can allow Cisco’s Internet Operating System to run on much cheaper hardware. Further, Cisco has no experience pricing this way, so getting prices right and being able to communicate them clearly without confusing customers will be a challenge.

Over the long term, though, the strategy is brilliant (if they can pull it off). In the Information Week interview (see link above), Chambers keeps coming back to wanting to know what customers value. When everything is bundled together, vendors don’t know if customers are buying throughput, security, ease-of-use, service, or some other feature. By unbundling, Cisco will better understand the customers’ value drivers, and be able to align investments in R&D, service, and support to better serve those drivers.

Bold move.

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