Cisco's Klein: We Want Majority Of Partners To Build A Software Practice

Cisco Systems has made no secret of its desire to recast itself as a software behemoth. Now it's encouraging the majority of its channel partners to move along with it.

"We want more than 50 percent of our partners to really work a Cisco software practice into their business model," said Bruce Klein, senior vice president of Cisco's worldwide partner organization.

Channel partners' aptitude for combining hardware, services and software will be critical to their ability to meet customer needs and maintain high margins doing it, Klein said in an interview with CRN the week before the company is set to kick off its 2015 Cisco Partner Summit in Montreal.

[Related: CRN Exclusive: Cisco's Klein Talks HP, Software Push And What's Coming At Cisco Partner Summit]

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"[The] software market [is] growing two times that of the hardware market. If you break it down and you look at the technical services in software vs. the technical services in hardware, it's growing more than six, seven times on the software side. There's just tremendous opportunity there," Klein said. "The margins on software vs. the margins on hardware are much higher. Those factors, when you put that together, and you look at selling a software bundle over four, five, [or] six years, that's when the revenue and margin models start playing out."

Klein rejected the idea that Cisco is asking solution providers to morph from hardware-led partners to software-led partners. Instead, he said, Cisco wants partners to make a more general shift as the San Jose, Calif.-based company turns its focus not just to software but also toward hybrid cloud and the creation of end-to-end solutions that deliver business outcomes, Klein said.

"I wouldn't say [partners will be] software-led vs. hardware-led. I'd just say it'll be part of their practice because they've got a Cloud Advantage Services practice. They've got a practice where they are selling our hardware, our technology solutions. They're Gold-certified. They do the specialization certifications. They'll still have that, absolutely, but I think the software piece is another big piece [and you'll] start seeing us put different roles into our ecosystem that we want partners to play."

Klein pointed to the growing trend of "digitized" customers, the rise of SaaS-based applications, the increased focus on software within the broader Cisco partner ecosystem and the company's plans to release more software itself -- both on-premise and cloud-based -- as areas where Cisco channel partners will see evidence of the company's software commitment.

At Partner Summit, Cisco will shine the spotlight on its Cisco ONE data center, WAN and network access software bundles, rolled out in January, and Cisco Spark, its recently launched collaboration service. Cisco ONE combines software features previously available individually, while Spark, unveiled in March, is touted as a cloud-based application that creates secure, virtual "rooms" where people can connect across any device.

Klein said 176 partners globally have been trained and built practices around Cisco ONE software, including early adopter Cisco Gold partners Dimension Data and Long View Systems, which were both part of a Cisco ONE pilot program.

"Cisco ONE sales are up, and we're seeing growth," said Marc Duvoisin, vice president of the software services organization at Dimension Data, No. 14 on CRN's 2014 Solution Provider 500. "Everybody is used to buying Cisco the old way, so we are seeing some sales and wins with some strong clients. … There's a lot of investment going on not only in the U.S. but around the world by Dimension Data to help our clients take advantage of this change in Cisco's posture associated with hardware and software."

The South Africa-based company is seeing single-digit growth across the board in Cisco sales, according to Duvoisin, with a strong growth in enterprise networking.

"I think it's less about the hardware now and more about the innovation and functionality of the software," said Kent MacDonald, vice president of converged infrastructure and network services at Long View Systems, Calgary, Alberta. "[Cisco] is allowing us to expand our conversation built on the foundation of core hardware. ... I think it's very timely and appropriate that Cisco repackaged their consumption model so that it's not only starting with a hardware conversation, it's about the features and functions offered within the software portfolio."

Long View, No. 65 on CRN's 2014 Solution Provider 500 list, saw between 35 percent and 40 percent growth in its Cisco sales last year, mostly in collaboration, converged infrastructure and the data center, MacDonald said.

Some Cisco partners said they need additional help building some of Cisco's software elements into their existing portfolios.

"How to leverage Cisco's cloud [and] Spark, and how to integrate at what level -- that's still unclear," said Chris Bottger, senior vice president of collaboration services at IVCi, a Hauppauge, N.Y.-based solution provider, ranked No. 201 on CRN's Solution Provider 500, that has seen 10 percent to 20 percent growth in Cisco sales over the past year. "Spark, that one has the most questions around it as to what you can integrate and at what level and when."

Another partner said Cisco needs to delineate its strategy for selling software to midmarket and SMB customers.

"Cisco was born through enterprise-class products and offerings, so a lot of the models they go to market with are built towards that size of customers … but the midmarket, commercial and SMB customers today -- what does that model look like?" said Steve Elkins, director of Cisco business development at Softchoice, a Chicago-based solution provider ranked No. 33 on CRN's 2014 Solution Provider 500.

Elkins said Softchoice's Cisco sales grew 20 percent year over year for its first quarter fiscal year 2015.

When asked specifically for financials around Cisco software sales, partners contacted for this story declined to comment or said they didn't separate out software from hardware sales.

Cisco does not separate out its software business in its quarterly financial results.

Cisco's 2015 Partner Summit will take place from April 27 to April 30.

Jennifer Follett contributed to this story.