Cisco CEO Vows To Fix Channel Imbalance

For some time, at least two of these companies have effectively sold product on the market at prices below what other partners could buy them for. The activity has resulted in a significant imbalance that has severely limited what smaller partners, who cater to tens of thousands of Cisco customers, can resell on behalf of the San Jose, Calif.-based networking giant, a chorus of partners have told VARBusiness.

Upon learning of the gravity of the problem, Chambers moved to take immediate action this week to remedy what many smaller players believe is the single biggest problem within the Cisco channel today. Among other things, Chambers, who is in Florida this week at his company's annual partner summit, asked representatives of these companies to change their go-to-market approach with regard to the company's products. Chambers refused to identify the partners by name. But two industry sources familiar with the problem at the event said one of the partners involved is MCI/WorldCom.

Commenting on the gravity of the situation, Chambers said: "This is an issue where the telcos aren't making money, my value-added partners aren't making money and Cisco isn't either."

Chambers, along with his top channel lieutenants, including Paul Mountford, vice president of worldwide channels, believe a long term solution to the problem lies in getting telcos, VARs and other IT consultants to work cooperatively together. In briefings and interviews, both Chambers and Mountford said the problem is not one of too many VARs. On Wednesday, Mountford said Cisco won't play "the hand of God" and try to limit partners in any given sector. Instead, he'll rely on the market to determine how many partners can exist in a market. Furthermore, Mountford hopes to increase efforts to help foster and even broker greater cooperation among partners where possible.

But doing so will require getting partners who view one another as serious rivals to look differently at companies in their space. In the case of smaller partners who have been burned by the low-ball tactics of the telco giants, that will be a tall order. Chambers said it's a must, however, if Cisco and its allies ever hope to achieve their top goal, which is to improve customer satisfaction.

Already, there's a glimmer of hope. At the partner event, Chambers heard from representatives of two of the carrier companies who happened to be on hand at the event for the first time. Their message to him: "We understand the harm we are doing to you, Cisco, and we apologize for that." More importantly, he said, the representatives said they will work to coordinate their activities with those of other partners in their geographies.

Understanding partner skepticism surrounding this issue, Chambers noted that his company has a lever in place to make sure that all partners comply with their obligations to his company: annual renewal contracts.

"I'm not going to allow is somebody to misuse the position we give them in the industry based on value add," he said. "I'm a partner for life. I move the majority of my products always through channels. I can't have one channel misusing that at the expense of others when the other are adding more value add."