Cisco Capital Is Clearing Hurdles For Partners Transitioning To A Recurring Revenue Model

Cisco Systems wants software and services make up 50 percent of its overall revenue. To accomplish that goal, the San Jose, Calif.-based company is changing how it transacts with partners to help them transition to a more valuable, recurring revenue model, according to Steve Taylor, senior director for Cisco's Global Partner Organization focused on Cisco Capital, a business unit that offers payment options for partners in more than 150 countries.

"Partners are critically important to this transition—we won't get there without our partners," Taylor said. "[Cisco Capital] is a way to give partners another way to grow their business and more easily make the transformation from the traditional side of the channel business to the managed services-type of experience with customers."

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Businesses have realized they don't have to own or operate IT equipment and are demanding more cloud and outcome-based solutions that they can pay for as they go. "More and more customers are saying to us and partners: 'I want flexible consumption and scalability based on the demands of my business, and I don't want to pay for it if I'm not using it,'” Taylor said. To that end, Cisco has started offering flexible consumption models in the data center space and is extending that model to networking as well.

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"For partners, instead of getting paid up front and moving on to the next sale, they have to invest money in the assets and people needed to turn the service on," Taylor explained. "They might be halfway through the contract before they recover from those up-front investments."

The Cisco Capital program can help lighten the financial load for partners by taking a portion of the contract and funding some money up front to the partner while it can still earn a residual on the sale each month, Taylor said.

"Now, the partner will have what they need up front to pay for those investments and are able to start accessing that new revenue stream," he said.

The customer's contract still belongs to the partner, who is responsible for delivering the service. Cisco Capital remains in the background, helping to make funds more accessible to the partner.

Presidio, one of Cisco's largest partners, works with the Cisco Capital team to help its customers acquire technology on an "as-a-service" basis on a single invoice, thus growing its own recurring revenue stream, said Art Kimicata, senior vice president for Presidio Technology Capital, a financial services arm that operates in the same way as Cisco Capital. Presidio's Technology Capital unit partners with Cisco Capital or can work independently of Cisco, depending on the needs of the end customer and how the customer wants to purchase IT.

"Many customers today want to bundle product, professional services, licenses, maintenance and managed services into one contract and invoice. We can work with Cisco to do that for all the products our customers are buying from us as well as Cisco's products," Kimicata said.

Presidio is seeing "more and more" interest from customers in paying for IT on a subscription basis, he said, adding that working alongside Cisco Capital is helping Presidio gain new customers.

"As a result of this partnership, the dozen or so large transactions we've done wouldn't have been possible without Cisco Capital. It's given us better leverage in the marketplace and a more streamlined transaction for customers looking to truly acquire technology as a service," he said.

The program is a win-win for partners and Cisco, Taylor said. Cisco's strong earnings and growth can be attributed in part to the company's move to a more predicable financial business model.

"Rather than having to sell $10 billion worth of new stuff every quarter, we have more and more that is under contract that is predictable and forecastable as we make this transformation."