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Cisco Challenges Channel Partners To Focus On Software, Recurring Revenue

A Cisco executive told members of Synnex's Varnex community that a software-first mentality provides channel partners with improved flexibility, margins, and, above all else more stickiness with customers.

Cisco, in its first presentation to Synnex’s Varnex community this week, told solution providers it was focused on being a software vendor, and that partners also need to make the change to a software focus if they want to meet customer’s future requirements.

Cisco’s appearance at this week’s Varnex conference stemmed from Synnex’s acquisition of Westcon-Comstor. The Comstor business was heavily focused on Cisco and Cisco-related products and services.

Craig Cieplinski, Cisco’s sales director for Americas distribution, told partners during his Varnex keynote presentation that his company depends on indirect sales channels for 95 percent of its sales.

[Related: Cisco-Backed Elastifile Debuts Data Fabric For Managing Data From On-Premises To Clouds]

Cisco is making massive changes to its product lines in response to changing customer requirements, including reinventing the network to be software-focused and less hardware-dependent, and driving security across the entire network, Cieplinski said.

Cisco is also taking a multi-cloud approach to networking, as customers look for new ways to move and secure applications, as well as improved customer experience, Cieplinski said.

"It’s about connecting the people and providing the right platform to make them successful," he said. "[We’re] unlocking the value of the data."

Cisco is essentially reinventing the network with a software focus that allows it to offer improved automation with built-in security and improved access to business insights, Cieplinski said.

This includes significant changes to two key Cisco platforms.

The first is Meraki, which is a cloud-based, cloud-managed networking platform, Cieplinski said. "This gives you the ability to wrap your services around it," he told partners.

The second is its Catalyst line of switches, including the recently-introduced Catalyst 9300 which now includes such capabilities as the ability to detect malware in encrypted traffic. "We’ll continue to expand our security functions across our entire product lines," he said.

Cisco's software capabilities are evident in a group of products the company is offering partners specifically aimed at making IT simple, Cieplinski said. These are the Cisco Umbrella security line, the Cisco Meraki networking line, the Cisco Spark collaboration tools, and Cisco HyperFlex hyper-converged infrastructure for scalable data centers.

Together, they form an architecture which solution providers can take to a wide part of their customer base, Cieplinski said. "This gives customers sophistication where they don't have sophistication," he said.

Security is a big part of that architecture, Cieplinski said. Cisco's security presence across that architecture is bolstered by TALOS, a group of 350 engineers dedicated to looking for threats and countering them. TALOS stops an average of 19 billion attacks per day, he said.

"If you are not leading with security, you are leaving a lot on the table," he said.

Solution providers who take a software approach to customers become more competitive, increase their agility, provide instant access to changes and updates, provide better financial planning, and share risks with vendors, Cieplinski said.

"This will open a lot [of opportunities] to partners," he said. "It will make you more sticky with your customers."

Channel partners who lead with software will see bigger deals, with 54 percent of profit coming upfront and the rest from follow-on services, Cieplinski said. They will also have more access to expansion opportunities vs. coming in once in a while to sell more products.

Software also allows easier management of customer accounts, and leads to renewal opportunities, Cieplinski said. "And it keeps out the competition," he said.

Successful partners with a software focus with Cisco are currently receiving about $6.18 in services with every $1.00 in sales, Cieplinski said.

Cisco and its partners are also seeing that software push result in increased renewals, Cieplinski said. "Cisco committed to the market that we will get to 40 percent recurring revenue by 2020," he said. "In the latest quarter, we said we were [already] up to 32 percent."

Jay Denton, vice president and general manager of Comstor U.S., said his organization has brought its Cisco EDGE program to Synnex.

"EDGE" is short for engage, or getting to know Cisco as a new vendor; develop, or deepening a partner's expertise in Cisco; growth, or helping partners start to compete for larger deals with new services; and extend that business to the cloud, Denton said.

Comstor and Synnex are now looking at how to leverage each others' capabilities to cross-sell the Cisco technology to Synnex partners and Synnex's other vendor technology to Comstor's Cisco-focused partners, he said.

Don Wynia, relationship management coordinator at CCB Technology, a Racine, Wis.-based solution provider and budding MSP that is already developing recurring revenue streams, said it very interesting to hear Cisco switching its focus from hardware to software.

"When I think of Cisco after my years in this business, I think hardware," Wynia told CRN.

Talking with customers about software capabilities rather than the hardware-based switches is a challenge to a vendor like Cisco, Wynia said.

"It's a huge change in perspective," he said. "And it’s a challenge to us as resellers to change. Cisco has always been a transactional business. Now it's going after recurring revenue. That's a whole new challenge."

Software is very much a part of being a solution provider, even if that software is coming from what customers think of as a hardware vendor like Cisco, Wynia said.

"We can't be selling just things anymore," he said. "We need new ways to look at customer needs. And it's a challenge, especially for companies like us which have been around for over 20 years."

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