The party mood was quite upbeat in the grounds of the Sheraton Hotel, Waikiki beach on the final day of the 2004 Cisco Systems Partner Summit in Honolulu, Hawaii, last month. Notwithstanding the fact that they spared no expense in providing the best in Hawaiian style food, drink and entertainment of all kinds, some of the feel-good atmosphere had spilled over from the summit itself, where the company made positive noises about the stronger economy and the market opportunities for resellers.
Cisco has traditionally been perceived as a bit of a ‘pile ’em high and sell ’em cheap’ box shifter on which resellers make precious little margins. This summit was an attempt to forcefully change this perception. Attended by over 2,000 people from around the world, including around 1,500 partner representatives, there were no shortage of channel-related announcements for a vendor that 10 years ago had a stronger direct than indirect channel. Today, the company now boasts a 94 per cent indirect channel worldwide, a figure that is probably closer to 100 per cent in the European and Irish markets.
It’s no coincidence that the move to a stronger indirect channel started with the appointment in 1995 of John Chambers as the president and CEO. Chambers was one of the darlings of the Internet generation. But he also iron cast his reputation as a turnaround wizard with the restructuring of a company that with reported revenues of $660bn in March 2000 to a one that posted a net loss of $2.3 bn in April 2001, back up to revenues of around $19bn today.
Many expected Chambers to be more of a presence at the summit, but his contribution was limited to a keynote address on the first day and presenting channel partners with awards. As the compere of the event, the limelight was more firmly focused on Paul Mountford, Cisco’s president of worldwide channels, and who was once Cisco Systems’ VP for the UK and Ireland.
In the last couple of years, the company has spent a bit of time revising its channel strategy. The first phase began in April 2003 with the launch of the Value Incentive Programme (VIP), which offers rebates for selling IP telephony (IPT) and security products. Mountford announced that it was doubling its rebate on IPT sales through the six-month rolling programme.
Internal Cisco research shows that partner profitability has increased on the strength of VIP in the year that it has been available. Participating partners experienced a 30 per cent increase in IP communications sales and 40 per cent in VPN/ security sales in the second six months of the programme compared with the first six months.
In addition, Cisco also announced a new deal-registration programme that is aimed at rewarding resellers that ‘hunt down’ new business in higher-margin but more risky advanced technology sectors. Called the Opportunity Incentive Programme (OIP), qualified Cisco reseller partners will be offered three to eight per cent discount, or equivalent rebate, on an entire deal, providing the new business is registered and verified by Cisco. The vendor classes IP telephony and communication, optical, security, storage and wireless as advanced technology sectors.
‘The cost of acquiring a new customer is higher, so the reward should reflect that,’ said Edison Peres, vice president of advanced technologies, worldwide channels.
One aspect of the programme involves a process whereby the deal is officially registered with Cisco, so that it becomes more difficult for other resellers to ‘swoop in’ and offer the deal at a lower price.
However, one Irish reseller was sceptical about how effective OIP would fare in the small Irish market. ‘I don’t see how that’s going to work,’ said Denise Tormey, business development manager at Plannet 21. ‘Everyone is chasing the same business and everyone knows what’s going on. There are only a limited number of new accounts out there.’ The scheme would probably be more effective for resellers in larger countries, she said, adding that the company already had a similar-sounding ‘traffic light’ system but wasn’t used much.
The OIP is being trialled in a number of regions, including the UK and Ireland, before made fully available to certified resellers towards the end of the 2004.
Mountford also announced a third prong to its channel strategy called the Solution Technology Integrator Programme, which would reward solution-based sales and resellers building services around its products. He said that resellers could yield more margin from these types of services than from traditional maintenance.
Irish resellers seemed impressed not just at the scale of the event and the positive noises Cisco made about supporting the channel. ‘The event gave me the feeling that the channel strategy is taken seriously at a very high level in the company,’ said Derek Collins of BT Global Services, a gold partner with Nortel and Avaya as well as Cisco Systems. Other Irish Cisco gold resellers attending the summit included LAN Communications, Plannet 21 and HP.
Collins added that it was interesting to note the long term strategy of Cisco Systems and to see the contrast between its approach and those of its main networking competitors with a voice background, including 3Com, Avaya, and Nortel. ‘I think those guys are going to have a real fight on their hands with IP telephony.’
Tormey of Plannet 21 said she was delighted with the extension to the VIP, which has been ‘very beneficial’ to her company.
Andy Buss, senior analyst from research firm Canalys, said the summit clearly showed Cisco marking out a strategic change from a product focused vendor to a solutions-based company, partially at least to help partners improve their profitability.
29/03/04
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