Cisco Systems Refines Its Services Practice

Among other things, the vendor is creating end-to-end project management methodologies and life-cycle support offerings for wireless, optical and storage architectures. Blueprints for IP telephony and security already exist, said Karl Meulema, vice president of worldwide partners, sales and marketing for Cisco's Customer Advocacy group, which delivers the vendor's services offerings.

Meulema said the blueprints will define a minimum set of services that Cisco and its partners need to provide to customers to help them be successful with advanced technologies.

Wim Elfrink, senior vice president of Customer Advocacy, said Cisco's services focus continues to center on network preparation, planning, design, implementation, optimization and operation. The extent to which its services teams work with partners depends largely on the size of the accounts: For service providers, Cisco will handle the bulk of maintenance services, with VARs responsible for application services; in enterprise accounts, Cisco will team with the appropriate partners; and in commercial accounts, partners will represent Cisco's network integration services.

Meulema said Cisco's Customer Advocacy group will mentor partners in areas where they do not already have skills.

A central theme of Cisco Partner Summit 2004 this week in Honolulu has been the vendor's obvious desire to guide solution providers upstream into professional services and business solutions. Although network maintenance services generate approximately $25 billion in revenue today, various research reports cited by Cisco's channels team show that over the next several years that number will decline as a result of pricing pressure. More important, the margin on those services will fall from up to 25 percent today to approximately 10 percent to 20 percent in the future.

Cisco believes higher-end professional services, including design and installation, will account for $52 billion, compared with $21 billion currently. The margins associated with those services should rise from a median of about 20 percent today to 25 percent to 50 percent in the future, depending on the service.

"If you've got most of your services in maintenance, you're going to be under margin pressure," said Paul Mountford, Cisco's senior vice president of worldwide channels.

This thinking is behind Mountford's plan to create a future partner incentive program focused on rewarding skills in vertical markets, such as health care, or horizontal solution designs, such as a blueprint for branch-office optimization.

"There's always a limit to how much you can make on hardware," Mountford said. "But services is the application of intellectual property, and it really doesn't have a limit in terms of the value it can bring to a customer."