There's a lot of consolidation going on among channel partners with large Cisco practices. We're seeing major moves like Presidio buying INX and Softchoice buying Unis Lumin, and a fewer other big ones. What are your thoughts on this idea of the mega-VAR? Do these partners need to buddy up to get even bigger and cover more ground if they want to compete effectively in the cloud era?
I think you're going to see a natural evolution and segmentation of the VAR community. Right now is a great time to be a Cisco reseller, and a consequence of that is there is a lot of equity coming into the space and valuations are high. That'll create more transactions because of how positive the environment is. So I do think you'll have more mega-players than we have today. But you'll also have more deep specialists that are distinctive around one or two things they do better than anyone else. Some of our partners are very obviously going that way. And there are some partners that, down market, are trying to make big investments and making the viability of surviving in that market far more attractive.
So it's reasonable to think the creation of those mega-VARs is going to continue in the Cisco channel?
I think so. Once that behavior starts, there are others who start to ask the question of, ‘Do I need to be doing that?’ so I think it naturally continues. But the other great thing about the Cisco channel program is that we have a great place for smaller VARs because we reward value over volume. There are economic advantages to being big, but it's not necessarily a volume advantage in our program.
Those smaller partners, the down market partners, they're not the types of VARs that are going to be able to stand up these massive architectural plays, and by their nature, they are more specialized in particular areas than some of their bigger counterparts. What are the decisions they have to make?
I think it starts by figuring out what customer segments they want to focus on. Some of the small Cisco VARs are very successful because they have a very distinctive value proposition. Everybody is bombarding them to try and get them to broaden their portfolio, but they've done well because they figured out early exactly what they wanted. Managed services is part of that -- it's not just using products off the shelf but adding additional value -- and some of them have gotten really good at that.
Does it surprise you at all that there's still reluctance toward managed services? We've been talking about that model for many years now, but there are still plenty of VARs just getting going with that.
Well, first of all, it's a model that's not something people can typically stand up in a year and get success. It's going to take a lot longer to see a lot of revenue there, so there is that reluctance. The companies into year three and year four, however, find they're pretty happy with the model. It takes an incredible amount of discipline to be successful.
Is it incumbent upon Cisco to enable that for them -- give them the types of programs and training to help them get there with managed services? Or is it smarter to say, ‘You figure it out and we'll help as needed?’
I think there is some value we can bring. One of the resources we have that's quite unique is the structure of our services model and where we're going in terms of opening up APIs and putting in smart services and creating an opportunity for partners to do a lot of managed services. You want to be able to show you have differential value vs. everybody else, and our services offering creates that opportunity. That's one of the most positive pieces of feedback we receive.
How much of a competitive advantage will that services approach be going forward?
I think we've evolved to a point where we're doing something our larger competitors aren't. Historically, you had Cisco partners all selling SmartNet, with a limited margin on that. Certainly they could add on life-cycle services or something else, but what we have now is opening up those large services opportunities to create true differential. That's game-changing.
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