Study Reveals Most Companies are Missing out on the Biggest Cost-Saving Opportunity

According to a recent study, the No. 1 concern among businesses is related to costs – facing the pressure to reduce costs and shrinking IT operational costs. The same study found that 80 percent of companies would turn to a third party for IT maintenance if the cost was lower. The conclusion? Companies are unknowingly creating and contributing to their top business concerns on their own – alternative IT maintenance providers can cut costs by 60 to 80 percent.

I recently spoke with Mike Sheldon (News - Alert), president and CEO of Network Hardware Resale, a player in today’s secondary equipment market and the company behind a recent study, “Challenging The Status Quo On Maintenance Contracts And Refresh Cycles To Lower Costs.” Sheldon explained that the biggest problem for these companies that want to cut costs without sacrificing quality is a lack of awareness.

Companies today are “comparing” prices before they decide on maintenance contracts. I put comparing in quotes because the average company is only looking at OEMs and their partners for quotes. Adding a third party vendor to the mix would reveal a dramatic price difference and in turn, create some competition for OEM maintenance and support programs.

The way it works right now, OEMs – the Ciscos, Oracles, Junipers and IBMs of the world – are making a fortune off of their maintenance programs. They bump up hardware and software upgrades to every two, three or five years, declare equipment End of Life (EOS) and force companies to upgrade perfectly good equipment. Sheldon explains that this is among the biggest wastes of money for a company.

IT equipment is ubiquitous and too mission-critical not to maintain, he says. And Sheldon admits that there are certain products that should be dependent on the OEM for maintenance and support, such as firewall devices, media servers and high-end data center routers. However, for the vast majority of other products, like IP phones and switches, this is where the cost savings are. These products either don’t ever need an upgrade or the upgrades are free. Paying for an upgrade or even replacing this equipment every few years is an unnecessary cost.

Some companies may know that third-party maintenance providers exist but may be skeptical about the significant cost savings – why is the difference so big?

Sheldon explains that manufacturers base prices on the list price of a product at the time it was sold. The list price never changes, so neither does the cost for maintenance. Third party providers like Network Hardware Resale (News - Alert)  base their prices on depreciated market value at that time. Technology equipment depreciates very rapidly – the same product you bought three years ago would not be sold for that price today. However, that doesn’t mean the equipment isn’t an effective solution for your business.

Say your business is opening a new branch or location. What Sheldon is seeing is instead of companies buying the equipment they just got for their other locations, they’re turning to the latest and greatest equipment, causing big diversity throughout the company. Third party providers offer hardware fully refurbished and warranted for life, and the price of two-year-old equipment is about two-thirds less than what it originally was.

After taking a look at these findings, it’s clear that companies are missing out on a big cost-saving opportunity. Sheldon’s advice is for companies to start rewarding IT departments not just for playing it safe, but for saving money and building a reliable, resilient network at as little cost as possible. “Break the mold of the three-year upgrade,” he says.