[c-nsp] MTBF for Cisco products

[Ted Mittelstaedt]

> -----Original Message-----
> From: Jon Lewis [mailto:jlewis at lewis.org]
> Sent: Friday, November 30, 2007 8:23 AM
> To: Ted Mittelstaedt
> Cc: Aaron; Justin Shore; Cisco-nsp
> Subject: Re: [c-nsp] MTBF for Cisco products
>
>
> On Tue, 27 Nov 2007, Ted Mittelstaedt wrote:
>
> > For a $20K device you better damn well understand it IS low.
> >
> > Name me one single automaker out there who could get away with
> > building a car that would stop running after 4.5 years.
>
> Name a car that will go 4.5 years of daily use without needing any parts
> replacement.
>

A Cisco router won't route a single packet if power is not supplied.

Strange that they don't list this as a failure.  Under your logic it
would be.

MTBF on an entire system has no meaning if your going to include
the items in that system that are supposed to be replaced regularly
as part of the normal preventative maintainence.

A great many cars will go a lot longer than 4.5 years without replacement
of non-preventative maintainence parts such as spark plugs, oil filters,
etc.

> cisco's warranty has always sucked...I assume as incentive for customers
> to buy smartnet (extended warranty/support).
>

It's a lot worse than that, actually.  The Cisco party line is that
the warranty is 30 days.  Probably because 30 days is the amount of
time specified by the Uniform Commercial Code.

However, in reality, you cannot buy a Cisco router from anyone other than
a dealer or distributor, and both of those will charge -massive- restocking
fees if you just try returning it for credit, and the distributors will
argue and stall and make it damn near impossible to return a router under
the 30 day warranty that simply has arrived DOA or fails within a week of
service and was purchased without a service contract.  Thus, effectively the
30 day
warranty for non-Smartnet-covered gear does not exist.

But, the warranty has really nothing to do with MTBF.

MTBF is what the manufacturer is telling you basically this is how
long we DESIGNED the thing to last - any time more than this that you
get is just your good luck.

A warranty is what the manufacturer is telling you is how long we
are going to GAMBLE that the thing will last.  This is a huge difference
because the manufacturer knows that if they use crap parts, they
are going to get all of the failures back, and they will pay for
this, whereas they won't get any offsetting benefit for the devices
that greatly exceed the warranty period.  (assuming a standard bell
curve applies to device failures, which it generally does)  Thus
from the manufacturers POV, they are going to either pay more money
for better parts or more money for warranty replacements - either way
they will pay for it.  Thus, there is no financial savings in making the
thing with crap parts and the bad-will engendered by doing so typically
keeps the manufacturer from willingly going there.

With the first few years of a new Cisco router service contract such
a small amount of the total price of the router, Cisco effectively is
extending a warranty of several years over their new gear, so the same
market forces apply.

As for an incentive to buy SmartNet, that is pretty apparent.  SmartNet's
hardware replacement is nothing more than a fancy insurance policy.
For it to make money for Cisco, Cisco has to take in more money in
SmartNet fees than they pay out in hardware replacement.  Thus it is
a guarantee that SmartNet will always be a losing deal for the customer.
However - that loss will ONLY appear over a statistical average of a
number of devices.

Thus, a customer that buys several hundred Cisco routers will very likely
SAVE money by NOT buying SmartNet on ANY routers, and just assuming
that they will lose a few during their service life.  A customer that
only buys 1 router will still MORE LIKELY never take advantage of the
hardware replacement on it - BUT if they DO take advantage of it, buying
the Smartnet will most likely be cheaper than paying for a complete
replacement.

It's no different than buying Comprehensive car insurance on your car.
If you were to only buy collision, and take the additional money you
would have spent on comprehensive and sock it into a savings account,
by the time your 65 you would be ahead.  But, having a positive balance
in that account when your 65 won't allow you to replace your car at
age 22 if a tree blows down on it and you have little money in that account.

The thing about these low MTBF figures that I feel is disgusting is
that it is clearly Cisco spending money to try to "punish" a minority
of customers.

The majority of Cisco customers buy and maintain Smartnet for more than
4.5 years on their new, high-dollar Cisco routers.  It's obviously
easy to show from a business case decision why it would be economically
stupid not to do this.

This means that the majority of these 4.5 year MTBF routers are going to
be replaced by Cisco.  In short, Cisco will lose money on this product
line.  If you don't understand why, then run the numbers, if you don't
know how to do this, then gimme your retail price your paying and I'll
run them and show you.

However, a minority of customers obviously don't run SmartNet on
their routers.  Apparently, Cisco has decided that they are going to
punish those customers by making a product they know will most likely
fail during it's lifetime of ownership by those customers - and thus
those customers will suffer as they will have to pay for a new router.

This is not justifyable as a business decision.  Remember the Ferengi
saying - there is no profit in revenge.  That is what is going on here.
Cisco is deliberately planning on losing money on a product line to
"teach a lesson" to some of the customers that don't buy a service
contract.  And along the way of doing this - they are going to toss
all the rest of the customers into the drink since the rest of them,
even though they may get reimbursed on the hardware by SmartNet - they
will NEVER get reimbursed for their additional labor losses incurred
by having to replace at a more frequent time period, nor for the
ill-will generated with their own customers when these devices fail
early.  (nor, in fact, for the additional money that they have to spend
on smartnet, as under this scheme smartnet becomes a required, rather
than an optional, purchase)

Ted