Warranty Wars: HP Throws Down the Gauntlet, Gives IT a Cost Savings Weapon

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    Quietly, HP announced something called its Lifetime Warranty 2.0 for the enterprise networking space in a clear attempt to make lowered operating costs a competitive battlefield. With products, often the maintenance costs are the sustaining revenue for a vendor that may not make that much money from the initial sale. HP has been aggressively driving down networking hardware cost ever since it bought 3Com several years ago, and now it appears ready to translate that cost savings into a weapon to gain market share from current market leader, Cisco. Warranty cost is an interesting weapon because, unlike lowered pricing, it tends to flow to the bottom line and makes it unusually painful for a dominant vendor to respond in kind.

    So what is HP’s strategy? How could it be successful? And why should you care? Read on.

    HP Lifetime Warranty 2.0

    The no-cost offering on HP’s current networking hardware has two parts—the first may be even more interesting than the second because it consists of three years of free, 24/7 support. This kind of coverage typically comes at a premium cost. Since current networking hardware appears to largely be on a three-to-five-year cycle, this support package, for a very valuable high cycle rate customer (think financial services) should be a massive operating expense. Such a deal makes a very good incentive to buy HP’s hardware because, for the high cycle rate customer, it effectively means free support for the service life of the hardware they have bought.

    The second part is, of course, the lifetime warranty on break/fix. Networking hardware has become incredibly reliable over the years; however, it does need regular patching and updates in order to remain secure and current. This isn’t as impressive as three-year, 24-hour support, but would make the hardware stand out against products with more limited warranty plans. 

    Why Warranty?

    When you have a cost/price advantage, you need a way to let the market know that your offerings can in fact be cheaper. Often shops lock in on a vendor largely because they don’t want excessive complexity, and they buy on contract so they aren’t aware that they should regularly go out to bid on networking gear to assure the lowest price. Just arguing that you are cheaper won’t get a shop’s attention, because they know they bought through a bid process. 

    Services like warranties can therefore become more visible because they step away from the bid price and they can be added to RFPs as requirements, which forces all vendors to step up to the same program or be forced to send no bid.

    Usually, smaller vendors are more likely to add incentives like this lifetime warranty. When this happens, the larger vendors may choose not to participate in bidding, arguing that the extended warranty only offsets the risks and shortcomings of using that small vendor. But when a major player like HP does it, the rules are very different, and other large players have to take the move seriously.

    Why Should You Care?

    Vendors at HP’s scale make moves like this for two reasons: because they want to draw attention to their offerings and because they believe they have a sustainable cost advantage. You care about the second reason because when used in an RFP as a requirement, it can force all vendors to respond in kind, which lowers your operating costs for the related hardware significantly—even if you end up not buying from HP. HP basically created a weapon—but one that you can use to your advantage, as well—and you would be wise to use it because such weapons aren’t always available for extended periods of time.

    Wrapping Up

    HP is making a significant move on Cisco with its new warranty program and you can use it to your advantage by reviewing the terms, taking the pertinent parts and building them into your RFPs as requirements. This should assure that you get the related savings regardless of which vendor you buy from, because saving operating costs remains a top IT priority—far higher than assuring any vendor’s bottom line results.

    Rob Enderle
    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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