Small Is Beautiful

With a more-than-commanding grip on the enterprise networking market"where Cisco flaunts No. 1 rankings across a variety of technologies"the bellwether company's president and CEO is ramping up efforts to make the outfit as dominant a player in the small- and midsize-business market as it is in the enterprise.

Since Cisco's SMB business is 100 percent channel-driven, its invigorated SMB push should help solution providers increase sales and develop closer ties with the company as it rolls out new products, partner programs, service offerings and a reorganized sales team that will soon include dedicated SMB personnel.

"I believe we will get more business as a result of the changes," said Raymond Benoit, president of RTM Communications, a solution provider in Merrimack, N.H. "Will it be 10 percent more? Fifteen percent? I don't know, but it will have a positive effect on SMB [customers'] perception of Cisco," he said.

No stranger to the SMB space, which Cisco defines as customers with 20 to 1,000 users, the vendor already lays claim to a significant share of the market, citing an amalgamation of analysts' research. In Chambers' view, that's just the jumping-off point.

"The commercial marketplace, the SMB if you will, will be both the fastest-growing segment of the market in growth but also in absolute terms. We also only have 40 percent market share there, so there's an opportunity for potentially dramatic market-share gain as well as growth," Chambers said in an interview with CRN. "If you combine the two, it gets pretty exciting."

On top of that, industry surveys indicate that 40 percent to 60 percent of future IT spending over the next five to 10 years will come from SMB customers, Chambers said.

SMB products currently account for about 25 percent of Cisco's $17 billion-plus product revenue and could grow over time to represent as much as 40 percent, he said.

To help fuel such growth, Cisco in April disclosed that it is in the midst of a $2 billion SMB investment that will carry into the next two years, aimed at boosting the vendor's product portfolio, enhancing channel programs and building awareness around its SMB offerings.

"This year is really the year of commercial for us. We've got both the go-to-market strategy and the technology strategy going," said Paul Mountford, senior vice president of worldwide channels at Cisco, San Jose, Calif.

In a move Mountford called "the biggest reorganization we've ever done in the U.S. for sales," Cisco is segmenting its Enterprise Sales Organization by customer size, creating a group of sales reps dedicated to the SMB market. Reps will be teamed with SMB-focused channel partners in their regions to help those solution providers find and close deals with end users. This initiative, slated to roll out at the beginning of Cisco's fiscal 2005 in August, replaces the previous model where reps covered both enterprise and SMB accounts in their regions and had more direct contact with end users.

The more partners the reps work with, the faster they can meet sales quotas, Mountford said. "We're taking a leap of faith by putting more trust in our partners to deliver this market for us," he said.

Cisco's regional planning efforts, a process through which the vendor's sales force identifies and works with go-to partners across each sales geography, will also now include SMB partners.

The new sales strategy helps increase collaboration and build trust between partners and Cisco's sales force, said Gia McNutt, CEO of Special Order Systems, a solution provider in Rocklin, Calif., that has been piloting the new strategy. "The whole directive is 'partner with your partners,' " McNutt said, noting that Special Order Systems has had more Cisco sales during the six-month pilot than it did all of last year.

Partners said they are also increasing their own efforts to reach out to Cisco's sales force.

"If there's an account manager with a $10 million quota, that's $10 million that's going to go through somebody. I'm looking at what I can do to be a part of that," said Lance Reid, CEO of NetLogic, a Turlock, Calif.-based solution provider.

Cisco is also tapping its distribution partners in efforts to help scale the new sales model down for smaller partners, said Chuck Robbins, vice president of U.S. channels at Cisco. Ingram Micro, for example, has been piloting regional programs that identify partners in its customer base not currently working with Cisco and helps get them registered and educated to sell the vendor's equipment. Ingram Micro, Santa Ana, Calif., will roll out the program on a nationwide basis under a project dubbed Glacier that will likely launch in the fall.

On the channel program front, Cisco this week plans to roll out SMB Select, a new partner designation for registered or certified solution providers that specialize in accounts with fewer than 500 users.

To qualify for the program, partners must have at least one Cisco-certified sales associate on staff, sold an average of $100,000 in Cisco products in the last four quarters, done at least half of its Cisco business with sub-500 user customers, and agree to provide all sales information to Cisco. In exchange, program members receive dedicated inside and outside sales resources, specialized training and technical resources, lead generation, special incentive programs and participation in channel advisory councils. Recruitment for the program is under way, with an initial target of 400 U.S. partners, Robbins said.

Meanwhile, to help arm its partners with specialized solutions, Cisco is preparing to launch 30 new products over the next year aimed at the SMB market in areas such as networking, security, IP communications and wireless.

In a sign of the rising importance that technology will play in Cisco's SMB strategy, the company last week named Charles Giancarlo to the CTO post. Giancarlo, a longtime SMB proponent within the company, said in a statement, "Technology plays a critical role in helping SMBs improve operational efficiencies and become more competitive."

Fundamental to those efforts is a shift in product development strategy that now aims to build offerings from the ground up with SMB customer needs in mind rather than trying to mold pared-down versions of enterprise products to suit the purpose, Chambers said.

Solution providers said they are looking for Cisco's SMB product blitz to include low-priced wireless access points, low-end IP phones with two-way speakers, intrusion-prevention solutions and more networking and VoIP products aimed at customers with fewer than 125 employees.

Cisco executives declined to comment on forthcoming product details.

In addition to some product gaps that need to be plugged, solution providers pointed to two challenges for Cisco. One is the perception among some SMB customers that Cisco gear is just for enterprises. "Smaller companies don't know Cisco can play in that space because they haven't been an SMB company," said Robert Keblusek, senior vice president of Sentinel Technologies, Downers Grove, Ill.

The other obstacle is that Cisco's products, known for carrying price premiums over competitors, can cost too much for price-sensitive SMB customers. "Cisco is talking and talking about the small-business market, but I still don't think they totally get it," said Jim Gildea, president of Aegis Associates, Watertown, Mass.

Chambers said price/performance across Cisco's product lines is improving. "Moore's Law says you double the price/performance every 18 months. We'll probably do it every 12 months," he said. Chambers also said the company's focus on ease of use, serviceability and integration of multiple technologies help keep total cost of ownership down.

That said, Cisco isn't about to embark on price wars with its competitors, so partners need to sell solutions based on their value, not price, Chambers said. "Do we always expect to earn a price premium? You betcha," he said. "We think the brand, the support, the investment protection, the No. 1 position, the capability to not only make the technology work together but to help educate [customers] through our partners on how to make their business processes better is worth a huge premium. Our partners have to learn to sell that and get the premium for it."

It's a familiar mantra that many partners are taking to heart.

"We're more profitable selling Cisco's SMB products because we're doing a complete solution set, a turnkey solution. Enterprises usually want a point product or just a piece of a solution," said Jay Kirby, vice president of sales at solution provider Troubadour, Houston. Troubadour's SMB sales have grown 20 percent to 25 percent year over year while enterprise sales have remained flat, Kirby said.

All in all, solution providers said Cisco's multi-pronged SMB strategy should help improve profitability and bring the vendor and its partners closer together.

"These changes mean that the channel is going to be more involved," said Mark Theoharous, president of Burwood Group, a Chicago-based solution provider. And by the channel's standards, that's no small matter.