The "brutal industry consolidation" over the past two years has left Cisco with fewer partners, but it has not lessened the networking hardware vendor's commitment to the partnering model, said Cisco CEO John Chambers.
"Our focus on partnering started 12 years ago, and it hasn't changed," Chambers said, speaking at the Cisco Partner Summit here Tuesday. "Partnering remains an integral part of Cisco's strategy."
Still, with growth slowing from 50 percent-plus a year to a virtual standstill, "There had to be a consolidation of our partner base," Chambers said. "There were just too many partners going after fewer and fewer opportunities."
Chambers said the number of Cisco certified partners stands at about half of what it was a year ago and predicted that the number would contract "a little bit more" in the future.
Cisco is committed to ensuring that its remaining partners develop sustainable, profitable business models, he said.
To that end, Cisco unveiled a number of new initiatives aimed at boosting partner profitability. (See Cisco Takes Steps To Raise Partner Profitability.)
Paul Mountford, vice president of worldwide channels for Cisco, said the past year has been "without question the most challenging year" in his career at Cisco. "My biggest challenge remains partner profitability," he told attendees at the Partner Summit.
Mountford said his team has come up with several solutions to help improve partner profitability.
First, Cisco's current discounting structure is being reviewed, he said. "At the moment, you make the same margin on IP telephony as desktop switching, and that's not right," he said to a round of applause from partners in the audience.
Mountford said Cisco also has set "target margins" for different technologies and is working on creating programs to make them a reality. For desktop switching, the target margin is from 4 percent to 8 percent, he said.
In the core routing and switching space, partners should realize margins of 12 percent to 20 percent, he said. Currently, Cisco Gold partners are averaging 7 percent to 10 percent margins on core routing and switching technologies.
In the more advanced technology markets such as security, storage, IP telephony and optical, partners should realize margins of 20 percent to 30 percent, Mountford said.
"We have to build a model that allows you to get to that point," Mountford said. "We realize that."
Mountford cited Cisco's recently launched Value Incentive Program as once such initiative. VIP pays partners a 10 percent rebate on IP telephony and security deals if partners hit customer satisfaction targets on the deals.
Also, Mountford said Cisco is removing the 1 percent administrative fee from its eAgent program. Under the eAgent program, certified Cisco partners can place the order with Cisco and have Cisco handle the customer financing, billing and product delivery. Cisco would then pay partners a fee for the order, essentially the difference between the price the partner negotiated with the customer and the partner's discount with Cisco.
Cisco also launched a 24-month lease program to make it easier and cheaper for partners to acquire demonstration lab equipment, Mountford said.