Presidio leaders said the decision by vendors like Cisco to bifurcate the hardware and software licensing around a single product could result in a services windfall.
"We do look at it as an opportunity because it's a way for us to create 'as-a-Service' models with our customers for their private infrastructure on which they're buying this hardware plus software," Paul Fletcher, Presidio's CFO, told Wall Street analysts Thursday. "It actually creates a greater managed services opportunity for us."
The arrangement should generate more opportunities for the New York-based company, No. 21 on the 2017 CRN Solution Provider 500, to sell managed services, adoption services, and consumption monitoring services to end users, according to Fletcher.
Clients will need to obtain the software subscription to unlock the desired features within the Cisco hardware they purchased, Fletcher said, especially since the newer features are coming out in that way. Presidio will also benefit from the setup long-term since it's expected to smooth out some of the revenue streams around refresh cycles, according to Fletcher.
In the old days, Fletcher said end users could choose to keep their routing and switching assets in the closet for however long they liked without ever renewing or refreshing them. But now, at a bare minimum, customers will be required to refresh the software licensing every three years.
"It's somewhat ingenious from the manufacturer's standpoint," Fletcher said.
Presidio has seen an uptick in revenue coming from software subscriptions as customers get more comfortable consuming those services separate from hardware, according to CEO Bob Cagnazzi. This has boosted Presidio's gross margin dollars, Cagnazzi said, but served as a headwind to its top-line revenue.
The solution provider is also seeing customers who early on moved aggressively into public cloud start to make investments in private and multi-cloud, Cagnazzi said. Having a foothold in several different types of cloud will help these end users balance performance, economics, compliance and security issues, according to Cagnazzi.
Margins on public cloud deals are usually a couple of hundred basis points lower than private cloud setups, Fletcher said. However, the public cloud agreements can be as large as $10 billion on a yearly basis, according to Fletcher, and those companies don't necessitate establishing a relationship and managing instances, performance, consumption, and adoption.