CISCO TAPS HARMONYCOM FOR NETWORK MANAGEMENT

Cisco Systems and software provider HarmonyCom called the bluff of service providers last week by giving them what they say they want: network solutions minus the upfront capex outlay and integration hassles they have come to expect. The next few quarters will tell if the service providers were serious.

The next couple of quarters also may tell whether small independent software companies in the operation support systems (OSS) space like HarmonyCom can continue to survive in a game in which the rules keep changing.

Ann Arbor, Mich.-based HarmonyCom has responded to economic demands with a new form factor and a pricing model that lets buyers of Cisco's 7200 and 7400 aggregation routers trial its subscriber management software free for 60 days before buying it on a per-subscriber basis.

At $2.50 per subscriber, the new Harmony 2.0 software — shipped with routers on a CD that can be installed in less than a day — significantly reduces the cost of configuring the router and maintaining a subscriber database, said both companies.

“This is very attractive to service providers that don't want to make a capital investment or have a six-month engineering project that distracts from the rest of their business,” said Paul McAfee, HarmonyCom's chief marketing officer and vice president of sales. “And it is not unattractive to us; it's a very attractive gross margin.”

Cisco would not release sales forecast for the 7200 and 7400 products, but the potential value for HarmonyCom is about $200 million, given an estimated sales potential of 2000 routers at half their 8000-subscriber capacity.

“Our financials don't include a forecast of anything like that, but certainly that's what we see as a reachable, realistic market if we have a successful year,” McAfee said.

Cisco will use the Harmony Subscriber Management Software to support new shipments of 7200 and 7400 routers, as well as 7200 routers already deployed. Service providers also have the option of buying software in blocks of 1000 subscribers or paying $10,000 per router when buying them in bulk.

“We consider provisioning to be part of the overall solution Cisco wants to provide to the customer,” said Ram Haridasa, managed services product manager for Cisco. “The software will help us sell more routers.”

The model may appeal to cost-conscious service providers, but the deal includes some risk for HarmonyCom, said Ferial Shomloo, senior research analyst of OSS competitive strategies for Stratecast Partners.

“It gives HarmonyCom a lot of exposure, but by tagging along, they tie their success to Cisco's,” she said.