Devinator

Every Wi-Fi vendor claims to be able to do everything these days.  ”Can your system debug my client-side driver issues and fix them on the fly?” “Sure!” Oy.  

First, let’s separate between lie and marketing exaggeration…

  1) Lie - a vendor doesn’t have it, and they say they do.

  2) Marketing - a vendor calls their feature by the same name as other vendors when that feature isn’t in the same realm with the industry standard functionality for that feature.

To me personally, these two things are both B.S., but dare I say that aggressive young companies don’t often see it this way. :(  

/Soap-box on

Aerohive strives for the highest integrity in Marketing, and if you feel that we’re goofing something up, please call us on it.

/Soap-box off

Now, I will ask you some thought-provoking questions. :)

1) Does fast/secure roaming matter to you?

  * If your voice call, video stream, or FTP session hiccups for 1-5 seconds, but will re-establish after a slow roam most of the time, would that be worth paying 25% less for your Wi-Fi solution?

  * Is L3 fast/secure roaming an imperative or could you just rearrange your network design a bit to get around the need in order to have a simpler GUI?

2) When you see “spectrum analysis” on the spec sheet, do you think, “Meh, maybe…I don’t know anything about that crap anyway”?

3) When a manufacturer’s representative says, “we have distributed, synchronized, stateful, policy-based, per-user, OS-and-application aware, follow-me firewalls”, do you respond by saying “booyah!” or  ”huh?”

  * Do you think “I don’t understand that. I just want Wi-Fi.”?

Obviously I understand that there are different requirements in the various vertical markets, different types of buyers, and different budget requirements.  I’m just looking for feedback from the audience - YOUR opinion – generally on the state of things in Wi-Fi. 

The reason for asking these questions is to try to get a picture of Wi-Fi market maturity.  Do complex features REALLY matter to most people or will a “back to basics” approach win the day?  Do we need more “automatic” stuff or do network administrators want more manually-configurable bells and whistles?  Is less more or is more more?

What do YOU want?

Thanks for your feedback!

Here’s how it went down.

When I got off the plane in Sweden, I connected to Wi-Fi and received an email from American Express saying that there was a suspected fraudulent charge on my card and that I should contact them via phone as soon as possible.  I stopped right there in the Airport and did just that.  One HOUR later, I had been assure that my card had been cancelled and a new one was being rushed to my hotel via DHL.  The new card was to arrive within 2 days, which was only modestly acceptable since I would have to ask colleagues to reserve my hotel room on their credit card, but it was a workable solution.  Amex assured me that I would shortly receive DHL tracking information for my card, but did I ever receive that tracking information? No, never. 

Over the next 2 days, I checked with the hotel front desk so many times that I know I was becoming irritating.  Nearing checkout time, and past the promised delivery time/day, I contacted Amex to find out where the card was.  They couldn’t find the tracking info, had no local office who could help, and they couldn’t verify that it had ever shipped. Lovely. What now? Oh yes, transfer me to the Global Assist dept after 1.5 hours (at ~$2/minute) on the phone with the I-Can’t-Help-You dept.  Global Assist will now try to pay for my hotel room with a fax to the front desk.  Oh, that worked out just great…authorization codes that don’t work, support calls, finger-pointing, Amex abandoning the whole situation blaming it on the hotel staff (who was very patient and helpful), and eventually Devin yelling at Amex to FIX IT!  When they realized that I was not going to stop yelling at them until they took responsibility, they did in fact fix it - after costing me another hour on the phone while I was running to catch a train and a plane. 

As I was traveling on the train, I would get cut off from Amex while trying to resolve this mess, and yet Amex would never try to call me back.  Why? More money and frustration for me going back through all of those menus and telling my story to a new person every time. I was very upset, as you can imagine.

But hey, what about my replacement card?  Oh… that??? Yeah, they couldn’t get it to me in Germany, or Barcelona, so perhaps maybe in Madrid at the airport…yeah, that’s the ticket.  Let’s leave the Devinator without a way to pay for anything in Sweden, Germany, and Barcelona, but we’ll get him a temp Amex in Madrid…one day before he leaves for home.  Yeah, that’s helpful.  So in each city, I had to ask colleagues for help with paying for things, making me all-the-angrier at Amex, who was still unwilling to do anything to help me in this situation.

I get home and ping Amex, and what did they do?  They gave me 10k SkyMiles and $200 toward my account, and then acted appalled that I wasn’t excited about it.  Sure, it was a nice gesture, but it wasn’t even in the ballpark with an appropriate remedy to the situation.  I would’ve gotten the 10k SkyMiles from the hotels, food, cabs, and all of that just from all of the money I would’ve spent on my card, and I spent double that $200 on phone calls to Amex, so I still came out way behind the curve on this deal.

I politely explained the entire situation to them AGAIN, and they simply refused to do anything further.  I explained that I would not accept this lack of customer service.  Their remedy? Silence.  Hmmm….OK…that’s certainly one way to screw yourself Amex, but I don’t recommend it. 

I offered a specific remedy to the situation - one that I think is more than fair - so that they would have an “out”.  They could “get rid of me” and get past this nightmare just by doing something nice for me to make up for their hideous customer service, perhaps learning a lesson in the process.  Here’s what I offered, verbatim (copied from my email to them) —

——-
My Remedy Proposal:

1. Since you costs me about $500 in phone calls, I would like my account upgraded to Delta Reserve for the next year for free.  Delta Reserve’s annual fee is $450, and since you costs me more than that, I feel that’s a fair remedy to the situation.
2. I spent about 4 hours of my personal time while out of the country on the phone with your representatives trying to fix something that was their responsibility (DHL delivery and tracking, getting my hotel paid for, etc.).  You have already given me a $200 credit toward my Amex account, 10k SkyMiles, and expedited my replacement Platinum card, which I have received, and this is a fair remedy.
3. I had to ask colleagues in 3 countries to pay for my hotels, cabs, food, and every other expense because I could not count on Amex to provide acceptable customer service.  This was embarrassing for me and a big pain in the neck for my colleagues.  For this, I would like my account upgraded to Delta Reserve for an additional year for free.  Put yourself in my situation for 2 weeks, and ask yourself if you think this isn’t a fair remedy.

There were additional problems that Amex caused me with this mess as well, such as not having a replacement card for nearly 2 weeks, which means that I couldn’t buy anything online.  I use my Amex card for all online purchases for work, such as plane tickets, hotels, rental cars, work items, and so on.  Without being able to input the new card info, I couldn’t plan the new travel, which means I had to wait until I got the new card.  This means I had to pay more for the new tickets because I couldn’t buy them far enough in advance to save money.  The effects of this fiasco go on and on.  I am willing to overlook this nightmare given my proposed remedy above, which I think is ridiculously fair to Amex - almost absurdly so.
——-

In summary, they get off the hook with:

1) Their original gesture of 10k SkyMiles and $200 credit.  Appreciated, and accepted.
2) Two years of upgrade to Delta Reserve.  I already pay $150/year for Amex Platinum, but this would be two free years of Delta Reserve, which they normally charge $450/year for.  The only real benefit over and above Platinum is being able to go into the Delta SkyClub lounges, which I wouldn’t typically use anyway to be honest (I’ve never used one actually).  It’s the gesture of making it available to me that counts most to me.
3) I get to see if they would treat me any differently as a Reserve card holder in bad situations.  I already know they screw their Platinum card holders.

What do you think? 
    * Am I being too harsh? 
    * Not harsh enough? 

What would you do? 
    * Any specific actions you would take other than telling my story and switching to a competitor’s credit card service?
    * I’ve already contacted Delta about Amex’s lack of service in this situation, but Delta hasn’t responded.

Obviously I’ve learned that I need a “backup credit card”, but at this point, unless Amex does a 180 on this, I don’t see them being either primary or secondary.  I’m interested in your feedback.

Dear Grandma,

I thought you might be curious as to why all that stuff about the bulls and the bees matters.  I told you the “what”, but I thought I’d write you another letter briefly explaining the “why.”

Why It Matters

There’s a long list of reasons why it matters, and some of them are hard to draw parallels to things you might understand, but I’ll give a few of them a try. 

Scalability, Throughput, and Management Complexity

What if Grandpa wanted grow the business a bit?  Think about the expense, time, and difficulty of adding and coordinating a number of Apollos, each Apollo being physically constrained by the number of heifers he could service per day.  Think about how much time Grandpa would spend managing the situation if he had 5 Apollos breeding 10 heifers per day.  Phone calls to heifer owners, reports, schedules, dealing with sick Apollos all the time…holy smokes at all of the confusion and overhead.  Having just one Apollo is bad enough, being kinda cranky the way he is sometimes, but imagine having to deal with the headache of a barn full of Apollos.  It’s more than I’d care to think about.  It’s exactly the same way with our competitor’s controllers.  They are limited in the number of controller-based APs they support, they are a bottleneck, the WNMS has to manage each of them separately….it’s just a pain I’ll tell ya.

Now contrast that with managing one bee hive with 50 bees in it…or 500, or maybe even 5,000 bees in it.  Which would you rather manage?  It’s all just one big lump sum of bees.  They all work the same way, they’re pretty much self-sustaining, and managing 50 bees is roughly the same amount of work as managing a million bees – it’s just a hive.  Aerohive’s system is just like this: one WNMS and one set of HiveAPs acting as a group called a hive.  The HiveAPs work together to control the hive and to perform all real-time network operations.

Increased Reliability

Imagine if Apollo got sick…or worse yet…died.  Where would you and Grandpa be then?  Up a creek I think.  Maybe Grandpa needs a bull named Zeus to go along with Apollo…but wait, that would cost several thousand dollars to buy and more money to maintain and manage each year.  It would make sure you never went without, and it would give you more capacity, but at what cost? 

Now contrast that against the bees.  Oh no!  A bee is sick!…no wait…it died!!  Let’s have a funeral…oh sorry, no time, another bee was just born, let’s celebrate!  In Aerohive-speak, we call this, “no single point of failure.”  There’s no one death (not even the Queen bee) that can bring everything to a grinding halt.  To a company who is counting on this wireless technology to “just work”, they usually prefer the bee model over the bull model.

Increased security

Let’s say you bought Grandpa a new pocket watch for his birthday.  Would you hide it in the barn with Apollo or in the beehive?  Think of the differences like this:

·      If Apollo was sleeping, eating, or pooping, you could sneak all the way into his barn before he’d even notice that you were there.  The same is true of our competitor’s solution.  It sits in the center of the network, and when client data needs to be inspected, it’s inspected after it goes all the way to the center of the network instead of at the edge of the network like it should be.

·      When’s the last time you caught a beehive off-guard?  Those jokers are apt to put a hurtin’ on you just about anytime you go and stir them up.  Folks who don’t believe that should reach into the hive and snag some honeycomb sometime.  Aerohive’s security is an edge-based, coordinated approach, offering all of the “regular” features plus many unique features.

Increased deployment flexibility & simplicity

Suppose that Grandpa got up one morning, strolled down to the barn, and told Apollo to handle all of the breeding on his own today because Grandpa is taking the day off.  Yeah, that’s a great idea.  There’s nothing “automatic” about Apollo you know – and just think about five such Apollos…yeeks! 

It’s no different with controllers really – there’s just nothing automatic.  There’s always some “issue” to worry about with local controllers, master controllers, blade controllers, stand alone appliance controllers, virtual controllers, cloud controllers, branch controllers, cluster controllers, backup controllers, N+1 controllers, controller licenses….it just goes on forever and ever.  “Control”, and often “data” as well, has to be backhauled to these controllers (wherever they might be made to live) making the entire network design unnecessarily complicated!  The funny thing is that none of those controllers are needed at all because HiveAPs can do the same functions.

Bees don’t have a controller, and boy do they get along well!  They work and work fast!  Putting out new beehive locations is pretty snappy.  The bees, which in Aerohive’s case equates to our control plane protocol suite called Cooperative Control, just automatically do their thing – no human interaction required.  Companies can just throw HiveAPs around wherever needed, in any role they need, and voilà (that’s a fancy new French word I learned Grandma).

Decreased costs

See, the way I got it figured, nobody likes to give away his or her money for no good reason.  If HiveAPs can do what controllers do, by way of using free control-plane protocols, then controllers are no longer necessary in enterprise Wi-Fi.  If controllers are no longer needed, then why do all of those vendors keep selling them?  I figure they’re just unnecessarily hosin’ people.  Now all of that may sound like Greek to you Grandma, so I’ll try to translate it for you.   

As you know, a beehive is self-fertilizing, self-feeding, self-organizing, and pretty much self-sufficient.  There are worker bees, drones, the queen, and so forth.  Drones mate with the queen to create new bees while worker bees get other stuff done.  This is a really good model.  To be competitive with this model, our competitors would have to kill off their Apollo (too slow, expensive, and hard to manage) and have only heifers.  If their heifers then had some effective methods of immaculate conception and self-feeding, then it would be a fair competition.  Bees are just much more organized, self-sufficient, and “automatic” as a group, and this is how Aerohive’s technology works as well.

In a nutshell, less components means less costs.  No Apollo means no barn to own/maintain, no grain mix to buy, no poop clean-up to do, no breeding coordination phone calls and trips, no shots to keep him from getting sick, and the list goes on and on.  If you think about not having 5 Apollos (at a large scale), you can really see how the savings start to add up.

I really should let you get some rest now Grandma.  All this techno-babble can really make a person tired.   Please give my best to Grandpa, and let him know that bees are better than bulls.  I’m sure he’ll know what that means.

Devinator

Dear Grandma,

Since the last time I dropped by the farm for biscuits and honey you asked me what makes Aerohive so special and why I travel around the world yacking on and on about it.  I hope this letter helps you to understand that I’m not a loon.

What Our Competitors Do

Our competitors build a wireless networking system, half of which is a bit like Grandpa’s prized bull Apollo.  It’s a giant, powerful, hungry beast.  In Apollo’s case, it’s just grain mix and hay, but in our competitor’s case, it’s electricity, cooling, data center rack space, feature licenses, and on-going support costs.  This half is called a controller.

The other half of their system is a little like all those heifers that Grandpa brings around to breed with Apollo.  They’re not very smart, Apollo pretty much does all the work, and they’re not going to get much work done without Apollo.  This half is called controller-based Access Points.

Of course Apollo can only service so many heifers a day, and in the same way, our competitor’s controller can only service so many controller-based APs at a time.  So, when they need more heifers serviced, they have to have more Apollos. 

The third half of their system is kinda like Grandpa himself.  Imagine if Grandpa owned 5 or 10 Apollos, each of which was breeding 5 heifers per day.  That takes quite a bit of planning, coordination, and paperwork to keep up with, no?  What if you wanted a report?  What if you wanted to look something up about one of the heifers?  This system component is called a Wireless Network Management System or WNMS for short.  The WNMS manages the controllers in the same way that Grandpa manages Apollo.

What We Do

You know those honey beehives that you and Grandpa are so proud of?  Well those beehives function a lot like Aerohive’s technology.  In fact, the functioning of those hives is how Aerohive got its name.  Within a hive, there is no central point of control.  Each bee has and knows its job and cooperates with other bees within the hive to accomplish the hive’s mission.

Instead of being like Apollo and his heifers, Aerohive’s technology has our Access Points talk directly to each other in just the same way all of those bees cooperate directly with each other.  Our Access Points are really smart.  They just say, “howdy neighbor, what’s shakin”, and then have a conversation with each other as needed.  That’s pretty much that.  Of course, Grandpa still has to manage the hive, so Aerohive still has a WNMS like that of our competitors.

Each HiveAP, like each bee, may have a different role (or multiple roles in our case) within the hive.  In Aerohive’s wireless system, it means a HiveAP can simultaneously provide access, bridge, mesh, VPN, WIPS, and other types of services.  It’s like each HiveAP is a super bee! J  I hope that makes sense Grandma.  I know it’s not a perfect analogy and that those acronyms probably make you break out in hives (no pun intended of course). 

This beehive method of “Cooperative Control” is how Aerohive’s technology will revolutionize the entire market.  It has some amazing advantages over our competitor’s model.  I’ll tell you about that in my next letter.

Don’t worry, I’ll be around soon to scarf up more of those biscuits and honey. :)

Big love from your favorite high-tech grandson. 

Devinator

So my 12 year old daughter Abbey plays golf.  I mean, she REALLY plays golf.  She’s been playing for just over a year, and she’s already firing bogey golf from the women’s tees.  She’s a 5 foot pencil, but piping her tee-box go-to- 3-wood an average of 200 yards, she hits it long enough to where we’re about to back her up to the shortest men’s tees.  Additionally, she’s about to start a work-out and stretching regimen to boost her distance a bit.  So far, so good.

This past year on the middle school golf team, she had several blow-ups where her expectations exceeded her ability during the tournament.  It wasn’t a pretty sight.  Having taught middle school golf for many years, I can tell you that with young golfers, it happens more often than not. 

The one experience that I’ll never let Abbey live down though was on #9, a par 5, where on her third shot she had a bit under 100 yards to the green.  It was her first hole of the day (shotgun start because middle school girls play SLOWLY), and Abbey had already hit two poor shots.  She was fuming already.  Abbey wanted to know the exact yardage of this approach shot, so she stormed over to the 100 yard brick and started taking her carefully calibrated 1-yard steps toward the green.  As she stepped it off, she counted aloud, “101, 102, 103, 104…” 

“Hmmm…” I thought to myself. :)  I think she’s already beat herself, and she’s only on the first hole.

“Abbey.” I said. 

“Not now, I’m counting.” she countered curtly.

“Abbey.” I said again with my eyebrows raised…and a bit of a weird look on my face. 

“What?”  she said angrily - obviously thinking only about those last two shots.

“What’s your yardage to the green?”

“105.” she blurted. 

“Really?  Are you suuuure about that?” 

She stopped, thought about it, then said, “yes, I just stepped it off.”  Oy vey.  She’s obviously in a fog of anger.

So, I took off my coach hat and put on my dad hat for moment.  “Abbey, you just counted UP as you walked TOWARD the green.  Are you SURE that’s how it works?”

She stopped.  Suddenly a big grin came across her face…and she looked at the ground in obvious embarrassment.  I remind her constantly of Bobby Jones’s famous quote, “Golf is a game that is played on a 5 inch course - the distance between your ears.” 

Every tour golfer can hit the ball well.  The difference between the good golfers and the great golfers is the mental game.  I’m a good golfer.  Someday Abbey will be a great golfer.

Today I was playing golf with my friend Steve.  We were on a par 3 at a course neither of us had ever played, neither of us endangering the course record. We were paired with this guy John.  John was a really nice guy and a pretty decent golfer.  He was easily keeping pace with our …umm… hacking.  Steve and I were talking about my Miura irons, as he’s looking to snag some CB-202 irons himself here shortly. Once you’ve hit’em, it’s impossible to want anything else. :) They’re like a golf equipment virus…one that will eventually become a household name I’m betting.

John, like everyone else on planet Earth when they first hear the name Miura, said, “Mi-what?”  I showed him, gave him some background on the clubs, and said, “try them.”  This particular par 3 called for a 4 iron for John.  I play the Miura Tournament Blades - Miura’s medium-sized blades - but most people would call them small I guess.  As John addressed the ball, “these sure have small heads.”  I replied, “not compared to the 1957 baby blades!” ;) Of course for Miura fans, that’s more than an inside joke, but it was of course true.

John chunked the HELL out of it, as I was betting he would.  Dirt spewed everywhere, and as I winced in mock-pain, looking over at Steve for a similar reaction, I was in shock when John handed the 4-iron back to me with a smile saying, “that was GREAT!”  WHAT?  Sheepishly, I replied, “yeah, people usually do that their first few times with blades.”  John said, “No, really, I loved it.  Very nice iron, even hit fat like that.”  Holy smokes, that 4-iron only went half way to the green. Maybe he hit it PHAT. :P

A typical Mfr/VAR discounting relationship ranges from 10-35% depending on the VAR’s partner level and the type of product being sold (access points, management platform, support services, professional services, etc).  These are not Aerohive’s exact numbers, so please don’t think that’s what I’m saying.  If you’re interested in being an Aerohive VAR, we have a nice little 2-page PDF file with all of the discount info on it that we’ll send you.

A high-tech manufacturer will typically use one or more of the three distribution models, but it’s important to note the golden rule of channel sales: DON’T COMPETE WITH YOUR CHANNEL!  This is a big no-no.  If a manufacturer sells direct, it should make sure its channel is OK with it, and they’re only likely to be OK with it when the manufacturer is selling a different set of products through each distribution mechanism.  In other words, when the manufacturer is selling some items direct and some items through the channel, the channel might be willing to ignore the situation.  The reason for the big no-no on selling the same products direct and through the channel is that manufacturers have an unfair advantage in the market against the VAR since their COGS (a fraction of List) is much lower than the VAR’s COGS (the discount level offered by the manufacturer).

A manufacturer might use different distribution models in different markets.  For example, in the US, a manufacturer may choose a one-tier model, while leveraging a two-tier model in Europe.  This may make sense since there are dozens of countries in Europe, each operating under different legal and cultural rules.  One or more VADs in each country have relationships with the VARs in that country, and therefore the manufacturer doesn’t have to have a large head-count within that country to achieve significant sales.

Now that I have given you a massive amount of context, let the cryning (my wife’s combination word for “crying and whining”) begin. 

BS Strategy #1: Cutting out the Channel Partner

This strategy is used by manufacturers that either: 1) Are too big to care about an individual channel partner, or 2) cannot survive without every last drop of revenue.  Another commonly-used term used for this strategy is “Going Direct.”  When a deal is so big or so key (as in ‘high-profile’) that a manufacturer wants to win it at all costs, they will sometimes cut the VAR or VAD/VAR out of the relationship and talk directly to the end-user (customer).  This is done by the manufacturer to offer a significantly-lower price to assure that the manufacturer wins the business.  This is death.  This will cause channel partners to seek partnership with different manufacturers. This strategy will cost large manufacturers a pile of money in the long run, and it will put smaller manufacturers out of business straight away. 

Just imagine if you were a VAR, and after working your butt off night and day, you landed a whale of a prospective customer (“prospect”).  You gave it 100% to win the business, and then, after you registered the deal with the manufacturer (in order to protect this account from other VARs working for the same manufacturer), the manufacturer stepped in and took the customer away from you - completely cutting you out of the deal.  How would you feel?  PISSED!  This rarely happens more than once to a VAR before they switch manufacturers, but there are, for some reason, cases where a manufacturer will do this to a VAR over and over before the VAR will finally partner with a different manufacturer.  It’s kind of like battered wife syndrome I think, and it just plain sucks.  The Mfr/VAR relationship is a partnership, and it should be built on respect and cooperation. 

If the manufacturer wants to go lower on the price, in order to “win at all costs”, then wouldn’t it be smarter to lower the VAR’s price for this “one off” deal so that the VAR still maintains the customer relationship, makes a healthy profit, and still gets to offer value-added services?  That way, the manufacturer and VAR are working together to win the customer’s business, each sacrificing something.  Handling it this way is a win/win/win situation.  Going Direct is BS.

BS Strategy #2: Price Hikes with Deep Discounts

Suppose, as a manufacturer, I priced a set of golf clubs for $1,000 List Price, my COGS was $200, and I don’t sell direct.  That’s a fairly normal List Price for top-notch golf clubs these days, right?  Then, the Golf Superstore (a very nice outfit by the way), asked to carry my clubs in their store.  As the manufacturer, I agreed to give them a 30% discount from List Price because they could sell lots of my golf clubs.  They buy the set at $700, and they sell them at $1,000.  Everyone wins. 

Then, “Mom-n-Pop Golf” moves in next door to every Golf Superstore, and they want to carry my golf club lines also.  I agree, and offer them a slightly different cost of $750 per set (because they don’t have the brand name of the Golf Superstore and aren’t likely to sell as many sets).  They agree, and then they sell my clubs at $950 per set.  As they sell more, I agree to further discount their cost to $700.  They’re happy, and now of course the Golf Superstore has to drop their price to $950 to match Mom-n-Pop Golf…who responds by dropping their price to $900.  You get the picture, right?  It’s Capitalism.  It’s commoditization.  It’s how it all works.

Suppose instead that I didn’t like this model of selling my golf clubs, and opted for a different model.  Instead of setting the List Price to $1,000 (normal), I set it to $2,000, sold my clubs to Golf Superstore and Mom-n-Pop Golf for $500, and then told them to sell the set at $700 to crazily undercut the competition.  What does this model achieve?

1) The manufacturer makes less money on each set, so they hope that the crazy-low price sell more sets.  If they don’t sell more sets, quickly, then they’re toast because they won’t have enough profit to operate their business.

2) The customer base looks at the $2,000 List Price at Golf Superstore and thinks, “Are their clubs really twice as good as everyone else’s?  If so, why are they selling them at $300 less than everyone else’s?  That doesn’t make sense.”  Their next move is to do a little homework, which means finding out what Mom-n-Pop Golf, Internet-based resellers, and eBay sells this set for.  $700 everywhere.  OK, so the $2,000 List Price is deemed misleading hype, the manufacturer is deemed a crook, and their clubs are now seen as “cheap” instead of “less expensive.”  The customer then goes with golf club vendor-B instead.

Some Wi-Fi infrastructure vendors are now using BS Strategies #1 and #2, and I gotta tell you, it makes me want to puke.  Of course, as a competitor, I should probably rejoice that those manufacturers will soon be out of business.  What do you think?

During my tenure at Aerohive, I’ve learned alot about how pricing structures work, from how “COGS compares to List” to how “one-tier in Market-A” compares to “two-tier in Market-B.”  It’s a complicated, ever-changing mess to be sure.  The part that borders on stupidness is what I would like to discuss in this blog: discounting.

I would like to offer some context to my ranting before proceeding, so please bear with me.  First, every smart business person (did you catch that?…that was PC) knows that holding onto your margin is important.  We’re all in the business to make a profit, and if we don’t, then we’re not in business very long.  Some companies take this to the extreme, cheating customers at every turn with every kind of confusing strategy.  Some companies believe in an “honest day’s work for an honest day’s pay.”  Customers buy from both kinds of companies, obviously.

Any discussion on discounting has to start at the beginning, and it all starts with COGS (cost of goods sold).  List price (called “List”) is basically a multiple of COGS based on the philosophy and experience of the person(s) within a company who sets the price and what the market will bear (against the competition who has similar products).  Discounting structures range broadly because there are different distribution models, such as the following:

1) Direct - this is where the manufacturer sells its good directly to the end-user.  It could be from a website, through a store-front, or directly through its inside or outside sales force.

2) One-tier - this is where the manufacturer uses distribution partners called Value-Added-Resellers (VARs).  VARs buy the manufacturer’s goods at a specific discount level based on their partnership level (e.g. silver, gold, platinum).  Their partnership level is determined by such things as (but not limited to) the number of trained/certified people within the VAR and the volume of goods they sell for the manufacturer.  The VAR can sell the goods at a price ranging from their own price from the manufacturer (called “pass-through”) up to List Price.  Discounting levels to the end-user depends on the situation (competition, location, end-user/VAR relationship, end-user budget, how much professional services are involved, etc.).  The “Value-Added” part is where the VAR may help the end-user with installation, configuration, troubleshooting, or other tasks related to using the goods they are selling.  The amount and price of professional services being purchased can affect the price of the goods being sold to the end-user because it’s often sold as a package deal.

3) Two-tier - this is where the manufacturer inserts a “middle man” called a Value-Added Distributed (VAD) into the distribution equation such that the manufacturer sells to a VAD (who takes a few points of profit for every item they distribute) who sell to their VARs who sell to the end-user.  VADs know their local markets, they have relationships with local VARs, and they often act as a sort of “bank”, often taking inventory from the manufacturer.  VARs have relationships with customers.  It’s simply impossible for a manufacturer to establish that many relationships because they aren’t large enough to have that many “feet-on-the-street”, so they rely on VADs in many places.

VADs and VARs are collectively known as a manufacturer’s “channel”, so you may hear terms like “channel marketing” or “channel sales manager” or “our channel rocks.”